With its focus trained on fulfilling natural gas demand on the Gulf Coast and beyond, Haynesville Shale pure-play Vine Energy Inc. is preparing to go public.
The Blackstone Group LP-backed private on Tuesday priced an initial public offering (IPO) for 18.75 million common shares at $16-19 each. At those prices, Vine could raise $328 million in the IPO, with a midpoint market value of about $1.2 billion.
Formerly known as Vine Oil & Gas LP, the Plano, TX-based operator would trade on the New York Stock Exchange under “VEI.” Blackstone would own 73%, according to the Form S-1/A filing with the Securities and Exchange Commission.
“We are an energy company focused on the development of natural gas properties in the stacked Haynesville and Mid-Bossier shale plays in the Haynesville Basin of Northwest Louisiana,” management said in the prospectus. “We believe the Haynesville will be particularly critical to meeting future natural gas demand.”
The Mid-Bossier formation overlays the Haynesville, and both formations extend into East Texas. In addition to its proximity to Henry Hub and Gulf Coast end-users, including petrochemical facilities, Vine’s management team pointed to the additional appeal of being near liquefied natural gas (LNG) export facilities.
“In contrast to the Haynesville, other sources of natural gas supply, including associated gas from oil-prone drilling and natural gas from the Appalachian region, are facing headwinds in the form of reduced activity and infrastructure constraints,” the prospectus noted. “Associated natural gas from oil-prone drilling was the largest contributor to natural gas supply growth from 2011 to 2019.”
As oil prices tumbled last year, there was less drilling, which is expected to result in a “significant decline in future natural gas supply.” The Haynesville “will be further relied upon to meet natural gas demand growth, driven by increasing electricity demand associated with the global economic recovery, coupled with the continued increase in global LNG cargoes.”
Sweet Spot For Gas
Vine’s predecessor company first entered the Haynesville in 2014, when Royal Dutch Shell plc sold its interest in 107,000 net acres for $1.2 billion. Shell also turned over its 250 MMcf/d share of production to the company, initially formed as a partnership by Blackstone.
Since it began drilling in 2015, Vine said it has participated in more than 280 wells. All the acreage is underpinned by legacy midstream infrastructure, which includes the primary third-party gatherer’s 500 miles of pipeline and related treating plants, the prospectus noted.
“We sell our gas at the tailgates of the treating plants attached to our gatherers’ systems and, as a result, incur and hold no direct firm-transportation cost or commitments. Furthermore, approximately 1.0 Bcf/d of additional transportation capacity came online in mid-2020” through DTE Energy Co.’s 150-mile, 36-inch diameter Louisiana Energy Access Project system. Another 1.0 Bcf/d of capacity is expected by mid-2021 with the startup of Enterprise Product Partners LP’s Acadian Gas Pipeline System, a 1,300 mile-long conduit linking Louisiana and Gulf of Mexico gas to regional customers.
“As a result of these takeaway and sales dynamics, our basis differentials have remained tightly banded since our inception, ranging from 1 cent to 26 cents/MMBtu; over this same period, basis differentials in Appalachia and the Rockies have ranged from 27 cents to $1.54 and 12 cents to 96 cents, respectively.”
The management team for Haynesville rival Comstock Resources Inc. recently shared similar sentiments. During the 4Q2020 conference call in February, CEO Jay Allison said the Frisco, TX-based independent was “in the right area,” only a “couple of hundred miles from this corridor where you need to be” to serve Gulf Coast markets.
Transportation costs, Allison said, “are a lot cheaper than if you’re in Appalachia. They’re probably $1.00, $1.50 cheaper in certain areas. And we have pipelines available that if you do need more gas, we can really supply it…”
Last year, Vine sold about 62% of total gas output through firm sales contracts, with 37% sold at “specified differentials from Henry Hub, providing additional support to our realized pricing. We believe these attractive relative realizations and our long-term access to growing demand (e.g. LNG, chemical, refinery) on the Gulf Coast support our development plan and ability to generate levered free cash flow in various commodity price environments.”
During 2020, Vine produced 240,869 MMcf, or 658 MMcf/d. That was up from 2019, when it produced 200,214 MMcf, or 549 MMcf/d.
Net losses last year were around $252 million, compared with 2019 net profits of nearly $24 million. Total revenue fell to around $379 million from $587 million. Vine fetched on average $1.57/Mcf for its gas last year, versus $2.93 in 2019.
Once the IPO is completed, Vine expects capital expenditures to be $340-350 million, nearly all trained on drilling and completion operations.
CEO Eric Marsh, who has led the company since its startup seven years, would continue to helm the operations, according to the prospectus. David M. Elkin took over as COO in January 2019, while Wayne B. Stoltenberg was named CFO in September 2018.
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