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American Energy – Permian Basin, LLC (AEPB), an affiliate of American Energy Partners, LP (AELP), today announced that since July 31, 2014 it has completed or entered into definitive agreements with multiple parties to acquire net production of approximately 1,400 barrels of oil equivalent (boe) per day and approximately 27,000 net acres of leasehold in the Wolfcamp Shale play in the central Midland Basin.  These assets are located primarily in Reagan County, Texas, and will be acquired for an aggregate purchase price of approximately $726 million.  On a net effective acre basis, AEPB is acquiring approximately 110,000 net acres and after giving effect to the value of the acquired production, AEPB is acquiring its new leasehold for approximately $6,000 per net effective acre.

With the addition of these assets to its existing leasehold position of 63,000 net acres, AEPB believes it will have established one of the industry’s premier leasehold positions in the Wolfcamp Shale play in Reagan County.  AEPB anticipates financing the transactions with proceeds from a privately-placed offering of exchangeable notes to institutional investors during the next 60 days.  The pending acquisitions are expected to close by year-end 2014, subject to completion of customary due diligence and satisfaction of other closing conditions.  Subject to market conditions, AEPB currently anticipates that it will pursue an initial public offering in the next 12 months.

Acquisition and Company Highlights:

  • Including the 27,000 net acres discussed above, AEPB owns approximately 90,000 net acres in the Wolfcamp play, which it believes equates to approximately 245,000 net effective acres.
  • On this 245,000 net effective acres, AEPB estimates it will be able to drill approximately 2,700 gross (2,300 net) horizontal drilling locations in the Wolfcamp A, B and C intervals, of which approximately 90% are located in Reagan County. AEPB believes there are significant additional potential development opportunities in the lower Spraberry, Cline and Atoka intervals.
  • Across its leasehold, the company uses multiple type curves.  For the company’s core Wolfcamp A and B wells, AEPB expects that its wells will recover approximately 527 thousand barrels of oil equivalent (mboe) per well on a two-stream basis and 579 mboe on a three-stream basis at a current cost of approximately $8.45 million, an expected 2016 cost of $7.25 million and an expected 2017 and beyond cost of $7.0 million.  A well with this estimated ultimate recovery is expected to have a two-stream 30-day average initial production (IP) rate of 647 boe per day.
  • Following the closing of the transactions, AEPB will have proved reserves of approximately 158 million boe.
  • AEPB is targeting to produce an average of approximately 33-38 mboe per day during 2015, of which approximately 70-75% is expected to be oil.
  • AEPB is currently operating five horizontal drilling rigs and anticipates increasing its operated horizontal rig count to 12 rigs by year-end 2015.
  • AEPB employs approximately 95 net full time employees and has offices in Oklahoma City, Midland, TX and Big Lake, TX.

As a result of growth in the proved reserves of its initial asset base, AEPB also announced that it has received commitments for the borrowing base under its revolving credit facility to increase from $500 million to $650 million upon the closing of pending acquisitions.

Further, AEPB has increased its oil hedging position and now has hedges providing downside price protection on oil production covering approximately 8,000 barrels per day during the 2014 fourth quarter (an estimated 68-72% of projected oil production) at an average price of $94.51 per barrel and approximately 11,000 barrels per day during 2015 (an estimated 40-45% of projected oil production) at an average price of $93.64 per barrel.

Well Result Highlights:

AEPB also announced strong initial well results from its horizontal Wolfcamp drilling program in Reagan County since taking over ownership of the Enduring assets on July 31, 2014.  Selected results from its newly completed wells are provided below:

The Halfmann 1214 01H generated a peak 24-hour IP rate of 1,796 boe per day and a 30-day average IP rate of 936 boe per day (83% oil).  Located in central Reagan County, the well targeted the Wolfcamp A zone with a stimulated lateral length of approximately 8,500 feet.

The Loftin Hughes 13-1212 01H generated a peak 24-hour IP rate of 1,594 boe per day and a 30-day average IP rate of 980 boe per day (78% oil).  Located in central Reagan County, the well targeted the Wolfcamp A zone with a stimulated lateral length of approximately 7,500 feet.

The Cope 107 3H generated a peak 24-hour IP rate of 1,363 boe per day and a 30-day average IP rate of 877 boe per day (78% oil).  Located in northeastern Reagan County, the well targeted the Wolfcamp A zone with a stimulated lateral length of approximately 10,000 feet.

The Cope 107 1H generated a peak 24-hour IP rate of 1,321 boe per day and a 30-day average IP rate of 755 boe per day (78% oil).  Located in northeastern Reagan County, the well targeted the Wolfcamp A zone with a stimulated lateral length of approximately 10,000 feet.

These wells are all tracking at or above the 647 boe per day first 30 day average production rate for AEPB’s 527 mboe type curve, which is normalized to a 7,500-foot stimulated interval.

AEPB anticipates providing its financial and operational results for the period ending September 30, 2014 on Monday, November 11, 2014 to investors.

AEPB’s lead equity investor is The Energy & Minerals Group (EMG), with additional equity provided by First Reserve, AEPB’s management team and others.