Dallas-based EXCO Resources Inc. agreed to pay $1.6 billion cash for Houston-based Anadarko Petroleum Corp.’s Vernon and Ansley fields, located in Jackson Parish in North Louisiana. The acquisition is a further articulation of the company’s focus on East Texas-North Louisiana as well as Appalachia.
EXCO is an independent whose production is more than 90% gas. Principal operations are in Texas, Colorado, Louisiana, Ohio, Oklahoma, Pennsylvania and West Virginia. The company recently acquired North Louisiana producer Winchester Energy and affiliated entities (see Daily GPI, July 25). EXCO President Stephen F. Smith said the main thing the company likes about its current focus areas is the long-life reserves.
“We’re mainly focusing on the Cotton Valley sands, and this latest [acquisition] was the lower Cotton Valley, but still it’s the Cotton Valley sand, so it’s long-life, very predictable with lots of drilling development possibilities in the basin,” Smith told NGI. “It’s just a good place to be concentrating.”
In May the company announced the acquisition of producing and undeveloped oil and gas properties in the Cotton Valley in East Texas in a $52.3 million deal with a private company.
In Appalachia EXCO is sticking to the sands although it has dabbled in the shale. Smith said there are plenty of opportunities to be a consolidator in Appalachia as there are approximately 3,200 operators in the region, some of them mom and pop operations looking to monetize their businesses.
“We’ve done really well up there and we’ve way more than doubled our production and have been able to acquire some really good assets and have done some drilling,” he said. It’s been pretty much on target with what we thought.” The only drawback is that deals tend to be small, around $25 million. Smith said EXCO would prefer to be taking bigger bites as it consolidates the play.
At the Nov. 1 effective date of the acquisition of the Anadarko fields they were producing 192 MMcfe/d (net) from approximately 350 wells (96% operated) within Anadarko’s 66,000 net acres. Six drilling rigs and four workover rigs are currently active in the fields.
EXCO said the average acquired working interest is 91.1% with an average 70.2% net revenue interest. The properties produce from the Lower Cotton Valley formation. Proved reserves are estimated to aggregate approximately 466 Bcfe, of which 446 Bcfe is proved developed producing and 20 Bcfe is proved undeveloped, calculated based on Nymex strip pricing. EXCO will continue evaluating the properties to identify additional exploitation and development opportunities. Total acreage is approximately 66,000 net acres, of which approximately 15,000 net acres are undeveloped. The acquisition also includes gathering systems, compression and treating plants.
In connection with the acquisition, hedges in respect of a significant portion of estimated production for 2007, 2008 and 2009 were entered into by Anadarko and will be assumed by EXCO. EXCO will finance the deal with a new revolving credit facility and a bridge loan from its banking group. EXCO is developing a deleveraging strategy, is considering alternatives, and said it expects to finalize its financing plans in January.
“The Vernon Field acquisition is an important strategic step in EXCO’s East Texas/North Louisiana area development plan.,” said EXCO CEO Douglas H. Miller. “The prolific cash flow from the Vernon and Ansley assets will be used to accelerate development of our approximately 1,100 drilling locations in the area and will also produce accelerated activity on our undeveloped leasehold, which will total approximately 85,000 net acres.
“In East Texas/North Louisiana, with the Vernon and Ansley assets, we will have approximately 300 MMcfe/d of current production and more than 1 Tcfe of proved reserves. Also, we will have approximately 226,000 net developed and undeveloped acres in this area. Companywide current daily production with the Vernon and Ansley assets will approach 400 MMcfe/d and total proved reserves will approximate 1.8 Tcfe of natural gas.”
The sale is expected to close in March, subject to customary closing conditions and adjustments. Jefferies Randall & Dewey marketed the assets and served as Anadarko’s financial advisor.
EXCO went public in February and in July a subsidiary signed a deal to buy Winchester Energy Co. and affiliates from Progress Energy Inc. for $1.2 billion cash. In conjunction with the purchase, the company announced plans for an initial public offering of units in a new master limited partnership (MLP) that will hold the Progress Energy assets as well as some of EXCO’s existing assets. That MLP offering has since been postponed while the company deals with other business, Smith said.
“We certainly think [an MLP] is a good home for long-life assets, and there’s certainly a great reason to do them,” he said. “We postponed it because of all the activity going on, and this latest acquisition is evidence of all that activity.”
The deal with EXCO is the latest announced in Anadarko’s ongoing divestiture program. Anadarko said earlier this month that it would not be issuing new equity as part of its debt-reduction program but instead would rely on asset sales (see Daily GPI, Dec. 13).
“This divestiture is an important step in refocusing the portfolio following our acquisitions of Kerr-McGee and Western Gas Resources in August [see Daily GPI, Aug. 24; June 26)] and we are pleased with the value,” said Anadarko CEO Jim Hackett. “These fields have been great assets for the company. However, the fields have reached the stage in their development cycle where it makes sense for us to monetize them, reduce leverage and focus on other attractive opportunities in our portfolio.”
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