$625 million Eagle Ford acreage acquisition makes WildHorse the second largest Eagle Ford player—for one fifth the price of Permian acreage
WildHorse Resource Development (ticker: WRD) today announced the purchase of 111,000 net acres in the Eagle Ford from Anadarko Petroleum (ticker: APC) and Kohlberg Kravis Roberts & Co (ticker: KKR).
In total WildHorse will pay $625 million for these properties. The deal is to be paid with $556 million cash to Anadarko and 6.3 million shares of WRD common stock to KKR.
Values the oil and wet gas focused acreage at $5,600/acre
The properties acquired are very close to existing WildHorse acreage, in the northern section of the Eagle Ford. Most acreage is in the oil window, but the southeast portion produces wet gas and condensate. In total, the properties are currently producing 7.6 MBOEPD, with proved developed producing reserves of 22.9 MMBOE. The $625 million purchase price equates to $5,600/acre, or $3,300/acre after adjusting for production.
This is far below the $30,000/acre or more often seen in recent Permian basin deals.
Source: WildHorse Investor Presentation
Most recent in series of transactions
This acquisition is the most recent in a series of purchases the company has made, establishing itself as a major player in the northern Eagle Ford. WildHorse’s acquisitions since 2015 have left the company with 385,000 net acres in the area, second only to EOG in Eagle Ford holdings. Pro forma to the acquisition, WildHorse produced 19.1 MBOEPD from its Eagle Ford properties, with 88% liquids.
Source: WildHorse Investor Presentation
Source: WildHorse Investor Presentation
Third generation frac design in the Eagle Ford yielding 55%+ IRRs
WildHorse has a new completion design that the company can use to develop its new acreage, its third generation of frac designs. Wells using this design typically outperform the company’s 91 BOE/ft. type curve, with recently drilled wells significantly outperforming. The company reports that its third generation wells yield IRRs of 55% or more, with the best wells approaching 140%. This new frac generation will be put to good use, as the acquisition adds 711 net locations where the 91 BOE/ft. type curve applies.
Carlyle to own 24% of the pro forma company
WildHorse will fund the cash portion of the acquisition through its credit facility and preferred stock. A total of $121 million will be provided by the company’s revolving credit facility, while the remaining $435 million will be funded by the Carlyle Group. In return the Carlyle Group, which currently has no ownership in WildHorse, will receive Series A Perpetual Convertible Preferred Stock. This preferred stock will pay a dividend rate of 6% per year, payable in kind, and may be converted to common stock in one year. Assuming full conversion, this gives the Carlyle group 23.8% ownership of the pro forma company. The transaction is expected to close around June 30.
WildHorse also reported first quarter results today, showing net earnings of $20.3 million, or $0.22 per share. First quarter highlights include:
- Increased average daily production by 18% to 17.6 MBoe/d for the first quarter 2017 compared to 14.9 MBoe/d for the first quarter 2016
- Increased Net Income to $20.3 million for the first quarter 2017 compared to a Net Loss of $14.2 million for the first quarter 2016. Increased Adjusted Net Income(1) to $0.1 million for the first quarter 2017 compared to a Net Loss of $13.7 million for the first quarter 2016
- Increased Adjusted EBITDAX(1) by 95% to $34.6 million for the first quarter 2017 compared to $17.7 million for the first quarter 2016
- Issued $350 million in senior notes due 2025 at 6.875% in February 2017
- In early March 2017, WRD brought online its first Burleson North well and one of the strongest wells to date in the East Texas Eagle Ford, the Paul 134 #2H, with an IP-30(2) of 1,035 Boe/d (93% oil) on a 5,363’ lateral. When normalized for downtime and a 6,500’ lateral, the IP-30 is 1,321 Boe/d
- In late March 2017, WRD brought online the Altimore #1H with an IP-30(2) of 1,048 Boe/d (84% oil) on a 6,435’ lateral and the Jackson #1H with an IP-30(2) of 958 Boe/d (85% oil) on a 6,297’ lateral
Analyst Commentary
From Capital One:
• Neutral quarter overall. Negative headline misses on EPS, CFPS, EBITDA, and production, offset by positive well results and a 4% bump to production guidance driven by well performance. WRD also announced a large East Eagle Ford acquisition this morning that will make the company the 2nd largest acreage holder in the play at what looks like a reasonable purchase price. The 23 Gen3 completions online to date are tracking a 101 boe/foot EUR type curve, 11% above the company’s existing 91 boe/foot EUR. Several of the Gen3 wells from last year are tracking 135 boe/foot EURs. This March, the Paul 134 #2H was WRD’s first Burleson North well, which, when normalized to a 6,500’ lateral and for downtime, had an IP-30 rate of 1,321 boe/d (93% oil).
• Acquisition: More important than the quarter, Wildhorse announced the acquisition of 111K net acres offsetting its existing 280K net acre position in the eastern portion of the Eagle Ford. The sellers were Anadarko and affiliates of KKR. Production during 4Q16 averaged 7.6 Mboe/d from the acquired acreage with a 72% oil cut. Backing out the value of the production (assuming $40K per barrel per day) implies a $3,300 per acre cost for the deal.
• Financing: To finance the $625MM purchase, 6.3MM shares of WRD will go to KKR. To fund the $556MM to Anadarko, there will be $435MM of perpetual convertible preferred shares issued and $121MM of borrowings from the credit facility.
