WildHorse Resource Development Corporation Announces Strategic Acquisition of Eagle Ford Properties

WildHorse Resource Development Corporation Announces Strategic Acquisition of Eagle Ford Properties

WildHorse Resource Development Corporation (NYSE:WRD) today announced that it has entered into a definitive agreement to acquire approximately 111,000 net acres and associated production from Anadarko Petroleum Corporation (“APC”) and affiliates of Kohlberg Kravis Roberts & Co. L.P. (“KKR”) for aggregate consideration of $625 million, subject to certain customary closing conditions. Fourth quarter 2016 net production on the acquired properties was 7,583 barrels of oil equivalent per day (“Boe/d”) consisting of 72% oil from 386 operated wells. The transaction is expected to close on or about June 30, 2017 with an effective date of January 1, 2017.

Key Acquisition Highlights

  • Approximately 111,000 net acres (95% held by production) in Burleson, Brazos, Lee, Milam, Robertson, and Washington Counties next to WRD’s existing acreage position
  • Approximately 7.6 MBoe/d of net production for fourth quarter 2016 consisting of approximately 72% oil and 89% liquids from 68 Eagle Ford, 299 Austin Chalk, 19 Buda/Georgetown operated wells
  • 949 net Eagle Ford locations and 22.9 MMBoe of proved developed producing reserves (73% oil and 88% liquids)
  • Leverage neutral transaction structure maintains a pro-forma net debt to annualized EBITDAX(1)(2) target of 2.0x or less

Operational Updates and Highlights

  • First quarter 2017 estimated production of approximately 17.6 MBoe/d consisting of 49% oil, 41% natural gas and 10% NGLs
  • Raised estimated full-year 2017 production guidance range to 27.0 – 31.0 MBoe/d from 23.0 – 27.0 MBoe/d with 1.0 MBoe/d of the increase as a result of well performance and 3.0 MBoe/d of the increase as a result of acquired production
  • In March 2017, WRD brought online its first Burleson North well and one of its strongest wells to date, the Paul 134 #2H, with an IP-30(3) of 1,035 Boe/d (93% oil) on a 5,363’ lateral. When normalized for downtime and a 6,500’ lateral, the IP-30(3) is 1,321 Boe/d.
  • In late March 2017, WRD brought online the Altimore #1H with an IP-30(3) of 1,048 Boe/d (84% oil) on a 6,435’ lateral and the Jackson #1H with an IP-30(3) of 958 Boe/d (85% oil) on a 6,297’ lateral
  • The Altimore and Jackson are located on a 2-well pad immediately adjacent to the eastern portion of the acquisition acreage. The Paul is adjacent to the western portion of the acquisition acreage.
  • Strong 2016 well results continue to outperform the type curve with the Candace #1H tracking an EUR of 138 Boe per foot; the Snap B #1H tracking an EUR of 137 Boe per foot; and the Belmont Stakes #1H tracking an EUR of 135 Boe per foot

“This transformative acquisition presented us with a strategic opportunity to consolidate our acreage position. With a total of 385,000 net acres, we have built a premier contiguous acreage base making us the second largest operator in the entire Eagle Ford trend. Furthermore, we have done so at prices we believe to be extremely attractive, providing highly economic returns on a full cycle basis. WRD’s pre-acquisition drilling schedule already includes 36 wells immediately adjacent to the acquired acreage. With the new acquisition, WRD can further optimize pad location and development planning with fewer limitations. As a result, this transaction immediately adds value to our existing program,” said Jay Graham, Chairman and Chief Executive Officer. “In addition, we recently brought online some of the strongest East Texas Eagle Ford wells to date which makes us even more confident in our strategy. We look forward to incorporating the acquired assets into our 2017 program,” added Jay Graham.

Transaction Terms and Financing

Transaction consideration is $625 million including approximately $556 million of cash to APC and 6.3 million shares of WRD common stock valued at approximately $69 million to KKR. In conjunction with the transaction, The Carlyle Group (“Carlyle”), through its U.S. buyout fund Carlyle Partners VI, has agreed to purchase $435 million of Series A Perpetual Convertible Preferred Stock (the “Preferred Stock”) from WRD. The remainder of the acquisition price is to be funded by borrowings under WRD’s revolving credit facility.

On April 4, 2017, the borrowing base on WRD’s revolving credit facility increased from $362.5 million to $450 million in connection with the semi-annual redetermination. WRD has been in preliminary talks with its bank group to re-determine its borrowing base as a result of the additional PDP reserves to be acquired in the transaction. Based on early indications from its bank group, WRD expects its borrowing base to increase by $200 million in connection with the transaction closing.

The preferred stock will pay a dividend rate of 6% per annum in cash, preferred stock, or a combination thereof at WRD’s sole election. WRD’s intention is to pay dividends in preferred stock for the foreseeable future. The preferred stock issued is treated as mezzanine equity on the balance sheet, given its redemption provisions. The preferred stock also includes additional equity characteristics such as its lack of a maturity date, junior ranking to all debt, and PIK dividend. As such, structuring the acquisition financing with preferred stock will have an approximately leverage neutral effect on our target net debt to annualized EBITDAX(1)(2) of 2.0x or less. For additional details and disclosures on the preferred stock terms, see “Series A Perpetual Convertible Preferred Stock” in this press release.

The Special Committee of the Board of Directors of WRD (the “Special Committee”) negotiated, approved, and recommended to the full Board of Directors the terms of the preferred stock offering. The Special Committee retained and was advised by separate legal and financial advisors. Barclays acted as financial advisor to WRD in regards to the acquisition and financing. Locke Lord LLP, Vinson & Elkins LLP and Akin Gump Strauss Hauer & Feld LLP acted as legal advisors to WRD in regards to the acquisition and financing.

(1) Adjusted EBITDAX and net debt are non-GAAP financial measure. Please see the reconciliation to the most comparable measures calculated in accordance with GAAP in the “Use of Non-GAAP Financial Measures” section of this press release.
(2)

Annualized EBITDAX is based on WRD’s first quarter 2017 reported EBITDAX of $34.6 millionand the acquisition asset’s estimated fourth quarter 2016 EBITDAX of approximately $15.75 million.

(3) The initial production rates represent the peak average of the initial production rates for the applicable consecutive days of production.

Operational Update

In the first quarter 2017, WRD brought online 7 gross (7 net) wells in the Eagle Ford. Among these wells was the Paul 134 #2H, our first well on the Burleson North acreage, with an IP-30(3) of 1,035 Boe/d (93% oil) on a 5,363’ lateral. When normalized for downtime and a 6,500’ lateral, the IP-30(3) rate is 1,321 Boe/d, making the Paul 134 #2H among the strongest wells in the East Texas Eagle Ford to date based on initial production rates. In April, WRD commenced drilling an additional six wells within the vicinity of the Paul 134 #2H which is adjacent to the western portion of the acquired acreage.

In late March, WRD brought online the Altimore #1H and Jackson #1H wells on a 2-well pad along the northeastern border of Burleson and Brazos Counties, adjacent to the acquired acreage. The early results are very encouraging with an IP-30(3) rate of 1,048 Boe/d (84% oil) on the Altimore #1H and an IP-30(3) of 958 Boe/d (85% oil) on the Jackson #1H. We believe the results of these wells provide us with further confidence in the acquisition acreage as well our Gen 3 design.

In addition to our recent well results, some of our strongest 2016 wells continue to significantly outperform the 91 Boe per foot type curve. The Candace #1H is tracking an EUR of 138 Boe per foot and is located immediately adjacent to western parts of the acquired properties. The Belmont Stakes #1H is tracking an EUR of 135 Boe per foot. The Belmont Stakes is located 4 miles south and 3 miles west of the acquired properties. The Snap B #1H is also tracking a very high EUR of 137 Boe per foot and is centrally focused on our acreage position.

With strong well results to the east, west, and north, WRD believes the new acquisition acreage is well-delineated and anticipates similar well results. Prior to the acquisition, WRD’s drilling schedule already included 36 wells immediately adjacent to the acquisition acreage. Of these 36 wells, 8 will receive a direct increase in working interest as a result of the transaction. The acquisition will also allow for further optimization of unit location, lateral length, and development in our Eagle Ford position.

Along with further Eagle Ford results, WRD expects to bring online an Austin Chalk well in the second quarter of 2017. With 299 operated legacy Austin Chalk wells on the acquired acreage, the horizon is present across the entire position and may potentially be redeveloped in certain select areas. In addition, WRD has recently completed its second Eagle Ford refrac test with encouraging results and plans for several more tests in 2017.

In North Louisiana, the recently drilled 2-well pad began flowing back in early May. WRD expects to release results from this pad and the Austin Chalk in late 2017 as more performance data becomes available.

READ MORE:  http://ir.wildhorserd.com/press-releases/2017/05-11-2017-110447207

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