One day after closing on its $4.975 billion acquisition for 413,000 net acres in West Virginia and southern Pennsylvania, Southwestern Energy (ticker: SWN) spent another $394 million to increase its working interest. On December 23, 2014, SWN secured a 20% stake of Statoil’s (ticker: STO) remaining working interest, which equates to 30,000 acres and 29 MMcfe/d net to Southwestern.
The latest addition is an extension of the multi-billion dollar purchase from Chesapeake Energy (ticker: CHK) in October. Per the original terms, the average working interest of the acquired properties was 67.5% at the time of the release. According to SWN, the latest acquisition boosts its footprint by “approximately 5.8% to approximately 73.0%.”
The $4.975 billion purchase was revised downward from the initial price of $5.375 billion due to recent commodity price declines. Nearly all of the returned prices were spent in the latest deal, so, in a way, this could be seen as a bonus of sorts by adding a 5.8% working interest for the price originally planned.
The newest addition is the third in the last three months and the second in December alone. All of its recent deals have expanded SWN’s presence in the Marcellus/Utica region.
| Date | Seller | Price ($MM) | Net Acreage | Net Production (MMcfe/d) |
| Oct. 16 | Chesapeake |
$4,975 |
413,000 |
336 |
| Dec. 23 | Statoil |
$394 |
30,000 |
4 |
| Dec. 2 | WPX Energy |
$300 |
46,700 |
50 |
| Southwestern Total |
$5,669 |
489,700 |
390 |
|
Not including its latest acquisitions, SWN reported production of approximately 2,100 MMcfe/d in its Q3’14 results. The Marcellus produced approximately 730 MMcfe/d in the quarter so the pro forma assets, assuming production remains constant, will increase by 54% to 1,121 MMcfe/d. Overall production would stand to increase by approximately 18%.
| Date | Seller |
Price/Acre ($MM) |
Price/Flowing Mcfe |
| Oct. 16 | Chesapeake |
$13,014 |
$15,997 |
| Dec. 22 | CHK (revised) |
$12,046 |
$14,806 |
| Dec. 23 | Statoil |
$13,133 |
$98,500 |
| Dec. 2 | WPX Energy |
$6,423 |
$6,000 |
| Southwestern Total |
$11,576 |
$14,535 |
|
In a press release, Torstein Hole, Statoil senior vice president and US onshore head, said: “The transaction reduces Statoil’s non-operated holdings at an attractive price, demonstrating the value of the Marcellus assets. Our new partnership with Southwestern Energy provides us with an opportunity to maximize the value of an important growth asset in our US onshore portfolio. Southwestern is a very dynamic operator that will maximize the value and return.”
Statoil first entered into the joint venture with Chesapeake in 2008. In 2010, STO paid $253 million to acquire 59,000 net Marcellus acres ($4,324/acre) in 2010. A total of nine rigs were running in the region at the time of its Q3’14 earnings release in October.
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Analyst Commentary
Capital One Securities (12.23.14)
Southwestern's acquisition of 413K net acres of liquids-rich Marcellus and Utica properties in WV and southwest PA from Chesapeake has closed. In addition, the company just announced this morning that it has purchased an additional 30K net acres in the area (via working interest additions from Statoil) for $394MM. In between these two deals, Southwestern purchased 47K net acres in northwest PA from WPX for $300MM. The deal with CHK was originally announced over two months ago when the 12-month strips for oil and natural gas stood at $79.60/bbl and $3.79/Mcf. Commodity prices have declined by 27% and 15%, respectively, since that deal was first announced. The purchase price for the CHK deal was revised downward from $5.375B to $4.975B. There was some speculation as to whether or not the deal would close at all because of the drop in commodity prices and/or new partner Statoil's potential reluctance to fund its portion of the drilling plan for the acreage. Based on SWN's initial plan to grow from 4 - 6 rigs next year to 11 rigs by 2017, we estimate that Statoil's original 33% WI interest (now reduced to ~27%) would have required up to $1B of CAPEX to fund activity over the next three years. SWN's newly announced purchase of Statoil working interest this morning helps to reduce that spending burden and may have been what convinced Statoil to accept SWN as a partner in the original deal with CHK. Southwestern will be hosting a conference call to discuss the details of the transaction on December 30th at 10 AM Central. We will be interested to hear more about the acreage and the plan to finance the deal at that time. The company is temporarily funding the CHK transaction using a $4.5B 364-day senior unsecured bridge term loan credit facility and a $500MM two-year unsecured loan. The working interest acquisition from Statoil will be financed using the company's revolving credit facility (same as the WPX acquisition). We expect the long-term financing plan for all three of these deals to be a combination of debt and equity financing with equity making up about 1/3rd of the total.
