FourPoint Energy announced the signing of definitive agreements to acquire oil and gas assets from Chesapeake subsidaries, Chesapeake Exploration (CEX) and CHK Cleveland Tonkawa, whose preferred interest owners are funds managed by GSO Capital Partners, as well as other third party investors and common interest owner CEX in three related transactions for a combined purchase price of US$840 million, with incremental and contingent payments payable to the preferred holders upon certain commodity price and performance conditions.
In addition, the preferred holders will receive a distribution of cash on hand and working capital of CHK Cleveland Tonkawa. The assets to be acquired include an interest in approximately 1500 producing wells primarily in the Cleveland, Tonkawa and Marmaton formations with average daily net production of approximately 21,500 boe/d over the twelve months ended April 2015. The production mix is 7000 b/d of oil, 5000 b/d of natural gas liquids and 57 MMcf/d of natural gas. The assets cover nearly 250,000 net acres centered in Roger Mills and Ellis counties, Oklahoma. Approximately 95% of the leasehold is held by production. FourPoint will assume full operations of the assets at closing which is anticipated to be August 31, 2015.
The acquisition will be funded by $619 million in FourPoint Holdings equity issued to funds managed by GSO Capital Partners and cash drawn from existing FourPoint Energy credit facilities.
"Chesapeake has developed this asset by drilling and completing over 190 horizontal wells since 2012,” said Kamil Tazi, executive vice president and COO. “Anticipating this transaction, Chesapeake halted its development plans and eliminated the active rigs working in this area in the first quarter of 2015. As FourPoint assumes operations, we plan to build back up to their previous momentum and continue to reduce drilling and completion costs while maximizing ultimate recoveries."
According to Seeking Alpha’s Dallas Salazar, when the assets were first shopped around last year, Chesapeake was being applauded by the markets for its 10% reduction to GAAP debt, 30% reduction to adjusted leverage (non-GAAP), and for its 36% uptick to operating cash flow.
“Chesapeake also had ample forward-looking hedging on the books and clearly no idea that a black swan event was about to unfold for the commodities,” said Salazar. “This, the fact that Chesapeake, at least in my opinion, wasn't negotiating out of desperation at the inception of the deal, but may have devolved into negotiating from that stance as the transaction dragged on, may have been what caused the transaction to take so long to close. FourPoint's Solich did note that the deal, ‘saw a lot of setbacks - such as the sudden drop in crude oil commodity prices over the last year,’ which is indicative to me that the deal was being priced ‘at market’ or in real-time with the price of energy. That is further indicative to me that Chesapeake most likely intended to get a much higher price for the assets than it got at conclusion.”
Pro forma for the acquisition and prior to customary post-closing adjustments, FourPoint's Western Anadarko footprint will exceed 400,000 net acres with net production estimated at 260 MMcf/d equivelent from approximately 4600 gross wells, with half of the production coming from oil and natural gas liquids.
Previously, FourPoint closed a $1.95 billion acquisition of Linn Energy's similarly positioned western Anadarko basin assets and a $275 million purchase of assets in the Granite Wash area.
Image: Anadarko Basin geology/USGS