Announces Rights via Purchase/Leasing Options on 132,758 Net Acres for $373.8 Million
Memorial Resource Development (ticker: MRD) unknowingly picked a very difficult time to enter the public sphere (the company launched its initial public offering on June 2, 2014), but the Houston-based company has been one of the more active buyers on the new commodity environment.
In a September 21, 2015 news release, MRD announced it has secured 132,758 net acres in North Louisiana since January 1, 2015, for total consideration of $373.8 million. Its exposure to the Lower Cotton Valley now spans 215,771 gross acres and 193,915 net, representing respective increases of 192% and 217% compared to year-end 2014.
MRD completed 19 wells in July and August, with lateral lengths averaging around 7,000 feet. Fourteen of the wells were completed in the Upper Red formation of the Terryville Field and returned an average peak 24-hour rate of 29.4 MMcfe/d, along with an average 30-day rate of 24.9 MMcfe/d.
One Upper Red well completed in September achieved the field’s second best peak 24-hour rate to date, measuring in at 40.7 MMcfe/d. The “monster” well, as described in a note from Irene Haas of Wunderlich Securities, “should silence the naysayers on MRD’s [Louisiana Methodist] well nearby and demonstrates that the play is laterally extensive.”
The second best well is also a product of MRD’s drilling operations and was completed in August, producing a peak 24-hour rate of 40.1 MMcfe/d. GreenHunter Securities believes the larger acreage position “will begin to get investors comfortable with a deepening inventory (though much delineation remains) and ongoing development efforts keep the growth trajectory on track while demonstrating repeatability across a growing footprint.”
The disparity in gross drilling locations are apparent in MRD’s presentation from a few weeks ago: its 3P reserves report identified 856 gross locations, while MRD management believes more than 1,000. John Weinzierl, Chief Executive Officer of Memorial Resource Development, explained the company’s operations during his company’s presentation at EnerCom’s The Oil & Gas Conference® 20 in August. “This is a horizontal redevelopment of a vertical play, and that’s interesting because of the risk,” he explained. “The risk is we have a delineated field – we’re just applying new technology to it.”
GreenHunter believes Q3’15 production will represent a 40% increase compared to Q2’15, which would place volumes at 375 MMcfe/d. MRD believes its Upper Red formation provides 121% internal rates of return at prices of $50/barrel and $2.50/MMcf.
Borrowing Base Increased, Public Offering Issued
MRD announced its borrowing base increased to $1,000 million from its previous standing of $725 million, effective September 18. The next redetermination will occur in April 2016 and utilize year-end 2015 reserves. Proved reserves as of year-end 2014 were 1,378 Bcfe, according to an audit commissioned by Netherland, Sewell & Associates, Inc.
MRD management expects to have more than $550 million in available borrowing capacity, compared to $560 million in Q2’15 – before the purchase agreements were finalized. In accordance with the borrowing base increase and the recent acquisitions, Memorial Resource Development issued an upsized public stock offering that would raise a gross total of $242.8 million (including the greenshoe), and will dilute its shares by about 7%. Management said the proceeds will be used to pay off its acquisitions and repurchase additional shares. More than half of its shares are currently owned by company insiders and 5% owners.