Acquisition buys Pioneer JV
Australian-based Sundance Energy (ticker: SNDE) doubled down on the Eagle Ford last week, buying 21,900 acres in the basin.
Sundance is acquiring acreage in La Salle, McMullen, Atascosa and Live Oak counties from a JV operated by Pioneer. The assets acquired produced an average of 1.8 MBOEPD in Q4 2017, 72% of which was crude oil. This production comes from 132 wells on the acreage, almost entirely wells that will be operated by Sundance. The acreage has 65.5 MMBOE of associated reserves.
Source: Sundance Investor Presentation
Acreage up 60%, reserves up fourfold
This is a major transaction for Sundance, significantly increasing its holdings. The company’s acreage rose by 60% to 56,600 net acres, while reserves jumped from 22.3 MMBOE to 87.8 MMBOE.
Sundance is simultaneously renegotiating the acreage’s midstream contracts, bringing them to current market rates. This can be a very important factor in the economics of a project, as midstream contracts that were negotiated before the downturn may be highly onerous in the lower oil price world seen today.
Sundance expects to begin drilling this new acreage in Q2 2018, using two rigs. The company will primarily use 2-4 well pads to lower per-well costs. This acquisition means Sundance expects to grow significantly over the next two years, with production of about 9.5 MBOEPD in 2018 and 21.5 MBOEPD in 2019.
$221.5 million purchase price equates to $7,240 per acre
Sundance will pay $221.5 million for the properties, which equates to an unadjusted $10,100 per acre. If production is valued at $35,000 per flowing BOE, Sundance paid an adjusted $7,240 per acre. In terms of reserves, Sundance paid $3.38 per proved BOE.
The company is undertaking extensive financing activities to pay for this acquisition and the upcoming development program. Sundance will raise about $260 million in equity through an offering of just under 370.7 million shares and an entitlement offer for1.25 billion shares. The company will also make a conditional offer of just under 4 billion shares following Sundance’s shareholder meeting in April.
Source: Sundance Investor Presentation
Furthermore, Sundance will refinance its debt by entering into a new $250 million second lien loan and a new lending facility with a $250 million face value.
Sundance will use $73 million of these funds as a deposit on the acquisition, while $143.5 million will pay the rest of the balance after the conditional offer is approved. The remaining funds, expected to be about $43.5 million, will go to the company’s 2018 development program.
