Rosetta Resources Inc. (ticker: ROSE) today announced it has entered into a definitive agreement to acquire Permian Basin assets from Comstock Resources, Inc. (ticker: CRK) for a purchase price of approximately $768 million, subject to customary closing adjustments.
- Provides new basin entry in Permian and access to oil-weighted multi-pay areas
- Adds 40,200 net acres in Delaware Basin delineated Wolfbone play
- Expands capital project inventory by approximately 1,300 gross drilling locations
- Adds 13,100 net acres with multiple exploratory opportunities in Midland Basin
- Accretive to cash flow per share in 2014
The acquisition covers 53,306 net acres (87,373 gross) located in Reeves and Gaines counties in West Texas. The Reeves County assets located in the Delaware Basin include 40,182 net acres and 74 producing (52 operated) primarily Wolfbone wells. Total current net production is approximately 3,300 barrels of oil equivalent per day (Boe/d) of which more than 73 percent is oil. Rosetta projects significant growth potential for the area based on an estimated 1,300 gross, or nearly 800 net well locations targeting the Wolfbone on 40-acre vertical well spacing. The Company estimates total net risked resources potential of 145 million barrels of oil equivalent (MMBoe) of which 67 percent is oil and 82 percent liquids. Potential upside also exists from further vertical well down-spacing and potential horizontal drilling, including the Wolfcamp formation, none of which is currently included in the resource estimate. Rosetta would be the operator of the majority of the Reeves County assets.
The Gaines County assets located in the Midland Basin cover 13,124 net acres and are currently un-delineated. Potential exists for multiple exploratory opportunities in the area. The Company’s resource estimate for the Permian Basin acquisition excludes potential future resources from the Gaines County acreage.
“This oil-targeted acquisition is an important next step in Rosetta’s strategy to pursue new growth opportunities and build our inventory of long-lived, oil-rich resource projects. These assets complement our Eagle Ford properties and are a good fit with the experience and technical knowledge of our operations team,” said Jim Craddock, chairman, CEO and president. “This transaction provides entry into the prolific Permian Basin with both existing production and strong growth potential in proven delineated areas as well as prospective exploration targets on undeveloped acreage. The addition of new capital project inventory provides competitive options as we prepare to deploy the free cash flow generated by our Eagle Ford assets.”
The transaction is effective as of January 1, 2013 and is expected to close on or about May 15, 2013. The transaction is subject to title and environmental due diligence and other customary closing conditions. The Company has secured an additional $700 million of committed financing for the transaction with the potential of accessing the capital markets prior to closing.
RBC Richardson Barr served as financial advisor to Rosetta on this transaction.
Conference Call Details
|What:||Rosetta Resources Inc. Permian Basin Acquisition Conference Call|
|When:||Friday, March 15, 2013 at 9:00 a.m. Central, 10:00 a.m. Eastern|
|How:||Conference Call — Dial (877) 293-5486 or listen live over the Internet via our website at the address above.|
If you are not able to participate in the conference call, an audio replay will be available from March 15, 2013, 2:00 p.m. Central, through March 22, 2013, 11:59 p.m. Central, by dialing (855) 859-2056, or for international (404) 537-3406, and entering conference code 23906219. A replay of the conference call may also be found on the Company’s website, www.rosettaresources.com.
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Oil & Gas 360® compiled a few paragraphs from research analysts who wrote on Comstock and Rosetta following the announcement. OAG360 suggests that you contact the analyst and/or salesperson to receive a complete copy of the report. Please read the important disclosures at the end of this note.
*Wells Fargo Securities (3.15.13)
Permian Acquisition for $768MM. Rosetta announced this morning an agreement with Comstock to acquire 53,306 net (87,373 gross) in the Permian for $768MM. Acreage includes 40,182 net in Reeves County and 13,124 net in Gaines County. In Reeves County: 74 producing (52 operated) primarily Wolfbone wells. Total current net production is approximately 3,300 Boe/d (73% oil.) Assuming flowing production $75,000/boe/d, undeveloped acreage metrics equate to $12,000/acre, backing out Gaines county acreage. Rosetta estimates 1,300 gross, 800 net Wolfbone locations on 40 acres. ROSE estimates total net risked resources potential of 145 MMBoe (82% liquids) and believes potential upside also exists from down-spacing and horizontal drilling, none of which is currently included in the resource estimate. ROSE would be the operator of the majority of the Reeves County assets. The Gaines County assets cover 13,124 net acres and are currently un-delineated. ROSE believes potential exists for multiple exploratory opportunities in the area. Transaction is expected to close on May 15, 2013.
Funding. ROSE has already secured $700MM in committed financing for the transaction with potential for accessing the capital markets prior to closing.
Initial Thoughts–Positive. ”New” management team makes its mark with long awaited transaction to acquire its next growth driver. Should be positive for shares as removes overhang on shape and form of transaction and provides clarity on growth plans beyond Eagle Ford. Asset fits profile management had targeted which was oil weighted, with multi-pay drilling opportunities. Perhaps some pushback given price CRK sell assets is nearly 2x what they paid a year ago, but production up over this time and from ROSE’s standpoint, upside potential likely from acceleration, downspacing, and horizontal potential. As we stated a few days ago, we expected chatter on Delaware basin in upcoming conferences as recent industry activity has been picking up in the Delaware basin with nearby operators CWEI, CXO, EGN, XEC, and WLL.
*Howard Weil (3.15.13)
Comstock Resources $15.96 (SO): Selling Permian to De-lever
Quick Take: CRK is getting more than double the price it paid for the Permian package it purchased in late 2011. The most important factor for CRK is that the balance sheet has been instantly repaired with the transaction, and by taking out ~25% of its estimated 2013 EBITDA, the Company received 1/3 of its enterprise value, making the transaction accretive. The deal immediately fixes CRK’s leverage issue and should help the Company accelerate growth in the Eagle Ford this year.
Details: The $768MM transaction nets the Company ~$29/Boe proved, or ~$12,500/acre for the 40,000 acres in Reeves County after backing out the ~3,300 Boepd production at $80,000/flowing barrel. We do not assume any value went to the untested ~13,000 net acres in Gaines County. For reference, CRK paid $334MM for the Delaware Basin acreage in December 2011.
Read-across: CXO has ~130,000 net acres in the Reeves and Pecos County area.
Rosetta Resources $50.00 (SP): Buying CRK’s Permian Asset for $768MM
Quick Take: ROSE answered the most frequent question recently asked about the Company: how will ROSE increase inventory? The Company is paying $768MM for CRK’s Permian inventory with 800 net vertical well locations in the Delaware Basin. The asset is very complimentary to ROSE’s existing Eagle Ford position. We like the move into the Delaware as the acreage still has ample upside and continues to improve. ROSE has top tier operating and development abilities that should help the play takeoff and has successfully added another leg to the stool. Finally putting the strong balance sheet to work, this likely leaves ROSE’s debt levels a little higher than comfort levels, but we see this improving in 2014.
*SunTrust Robinson Humphrey (3.15.13)
Rosetta Resources (ROSE, $50.00, Neutral) announced a $768M deal for 53,306 Permian acres from Comstock Resources (CRK, $15.96, NR). We had been cautious on ROSE because we believed a deal was imminent. Our view of today’s deal is that ROSE is paying toward the high end of Permian prices, and we think the company is likely to soon issue equity to finance it. The metrics of the deal follow.
Assets producing 3,300 Boepd (73% oil) from 53,306 net acres in Reeves and Gaines (13,124 net acres in Gaines un-delineated).
Metrics: $232,727/Boepd, $14,407/acre and $8,217/acre after backing out production at $100,000/Boepd (including the un-delineated Gaines county acreage).
CRK bought Eagle’s Reeves County (44,000 net acres; 1,400 Boepd at the time) for $346 million in December 2011. That was $7,856/acre and $4,551/acre after backing out production at $100,000/Boepd.
Other Reeves County firms that appear likely to outperform include Clayton Williams Energy, Inc. (CWEI, $41.62, Neutral), Forest Oil Corp. (FST, $6.21, NR), Concho Resources, Inc. (CXO, $96.82, Neutral), Energen Corp. (EGN, $49.00 NR), and Resolute Energy (REN, $11.28, Neutral).
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