Continental divests North Dakota and Montana assets for $222 million
Continental Resources (ticker: CLR) announced the sale of non-core assets today for $222 million. The assets include 68,000 net acres in North Dakota and 12,000 net acres in Montana with 2,800 BOEPD of current production. The assets were sold to an undisclosed buyer, CLR said in their press release.
The implied deal metrics for Continental’s deal were $2,775 per acre, and $79,285 per flowing BOE of production. “Assuming [an approximately $50k/Boe production rate multiple, the acquisition equates to a fair ~$1,020 per acre valuation, net of production,” a not from KLR Group said today. “The transaction lowers YE’16 net debt-to-EBITDA from ~3.7x to ~3.6x. The divestiture should have a negligible intrinsic value impact though has a positive optic due to the improvement in liquidity.”
This is the third sale of non-core assets this year, with proceeds totaling more than $600 million. In May 2016, the company announced the sale of approximately 132,000 net acres of leasehold in the Washakie Basin in Wyoming for $110 million. On August 3, 2016, Continental announced it had signed a definitive purchase and sale agreement with an undisclosed buyer to sell approximately 29,500 net acres of non-strategic leasehold in the eastern SCOOP play in Oklahoma for $281 million.
Operators changing their core focus
The downturn in oil prices has forced operators to change their focus if they hope to remain competitive. As part of their efforts to lower costs, many E&P companies have been shifting their focus to the core-of-the-core of their assets, and in many cases, divesting more assets that require more capital to develop.
Chesapeake Energy (ticker: CHK) announced August 10, that the company was giving away its Barnett Shale asset. The high-profile decision marked Chesapeake’s exit from the birthplace of the shale revolution. While CHK will not receive any proceeds for the assets, leaving the Barnett will eliminate an estimated $1.9 billion in long-term pipeline agreements for the company.
Chesapeake Chief Executive Officer Doug Lawler commented, “Today’s announcements mark a major step in our continued progress to transform Chesapeake. Given the significant negative cash flow profile of the Barnett assets, the net cash paid out in these transactions has a payback of less than 18 months, and it will be partially funded by the $146 million sale and assignment of our long-term gas supply contract.
“While the Barnett has great potential, it simply could not compete for capital in a portfolio with the depth and breadth of Chesapeake’s at current commodity prices,” Lawler said.
