Fattens Resolute’s Delaware footprint 28%, adds 112 Wolfcamp A and B locations
Resolute Energy (ticker: REN) announced today the acquisition of 4,600 net Delaware basin acres for $160 million. In addition to the acreage, Resolute also acquired 800 BOEPD of production, six drilled but uncompleted wells and one well currently being drilled. The transaction will increase Resolute’s Reeves County holdings by 28% to 21,000 net acres. The acquisition is scheduled to close on May 15, 2017.
About half of the acquired acreage is adjacent to Resolute’s existing acreage. The company estimates that this acreage can support 112 gross locations targeting the Wolfcamp A and B, with additional drilling potential for targeting the Wolfcamp X/Y and C. All the existing wells in the transaction are located in this section of acreage.
The second half of the acquired acreage is farther south in Reeves county. This acreage is near multiple successful Wolfcamp wells and is believed by Resolute to have excellent development potential.
This acquisition has accelerated Resolute’s development plan for its Reeves county acreage. The company expects to complete the DUC wells immediately after transaction close. A third rig may be added later in the year to support development.
Source: Resolute Energy
Spacing tests targeting 16-24 wells/section
Resolute’s Delaware basin activity is currently focused on producing from the Wolfcamp A and B formations. Significant infill drilling potential exists, though, and is currently being tested by the company. While current drilling plans prescribe a total of eight wells per section, Resolute is testing spacing of 16 to 24 wells per section. Future drilling may target the Wolfcamp X/Y, C and D.
The contiguous nature of the acquired acreage will allow the drilling of longer laterals, improving economics. On current nearby Resolute acreage, a 7,500’ lateral well will produce an IRR of about 60%, while a 10,000’ lateral well has an IRR of 125%.
Analyst Commentary
From Capital One:
• Acreage valuation metrics: The adjusted price equates to ~$23K/acre, after ascribing ~$41MM of value for the existing production (at $60K per flowing bbl/d for oil and $4K per flowing Mcf/d for gas) and $14MM for the DUCs ($2.5MM/well). Overall, this adjusted value is slightly below recent Delaware acquisitions such as WPX’s Panther acquisition at $27K/acre and similar to PDCE’s January acquisition at $23K/acre. The Orla adjacent to REN’s Appaloosa and WPX’s Stateline acreage likely commanded a significantly higher price tag than the Southwest Rim package near APA’s Alpine High.
• Other deal metrics: Price tag equates to ~11% of REN's enterprise value. REN also received 2 wells producing ~800 boe/d and 6 DUCs on the Orla properties (near its existing Appaloosa acreage where REN has generally posted its highest IP wells). REN is weighing whether to add a 3rd Delaware rig to the Orla properties at mid-year. Please click here for relevant maps showing REN’s Delaware properties and offset operator activity.
From KLR Group:
Assuming a ~$40k/Boe production rate multiple and ~$5K/acre for Southwest Rim, the acquisition equates to an elevated ~$53K/acre valuation for the Orla acreage, net of production. To fund the acquisition, the company has entered into a $100 million bridge facility and is evaluating ultimate long-term financing that comprises debt and equity. The acquisition includes six Wolfcamp DUCs in Orla (four ~4,500’ laterals, two ~7,500’ laterals). The company plans to complete the DUCs immediately following transaction closing and increase Delaware Basin drilling activity from two rigs to three rigs in 2H/17, with the additional rig allocated to Orla. We were expecting Resolute adds a third rig in’18. In Orla, Resolute believes the acreage includes 112 gross (54 net) drilling locations in the upper/lower Wolfcamp A and Wolfcamp B, with potential prospectivity in the Wolfcamp X/Y and Wolfcamp C. The company believes the Southwest Rim acreage could be prospective for the Wolfcamp, Barnett and Woodford horizons. The acquisition increases Resolute’s Delaware Basin leasehold to ~21,000 net acres. The transaction is expected to close mid-May. The acquisition should have a minor negative value impact due to the acceleration of drilling activity partly offset by the elevated purchase price, a portion of which is likely equity-financed.
