Penn Virginia Corporation (“Penn Virginia” or the “Company”) (NASDAQ:PVAC) today announced that it has entered into a definitive agreement to acquire Eagle Ford assets located primarily in Lavaca County, Texas for $205 million in cash from Devon Energy Corporation (“Devon”) (NYSE:DVN). The Company anticipates the acquisition will close on or before September 30, 2017, with an effective date of March 1, 2017. Penn Virginia expects the purchase price will be adjusted downwards by approximately $15 million to reflect estimated net cash flows from the effective date to closing, resulting in a net purchase price of approximately $190 million. The acquisition will be funded with new $150 million of committed debt financing and borrowings under the Company’s credit facility.
Significant benefits of the strategic acquisition:
- Acquiring approximately 19,600 net acres contiguous to the Company’s core operations, offering an expanded well inventory including the opportunity for extended reach laterals (“XRLs”) with PV10 breakeven pricing of less than approximately $30 per barrel;
- Increases Penn Virginia’s net production by approximately 30%, or approximately 3,000 barrels of oil equivalent per day (“BOEPD”), of which approximately 64% is oil;
- Accretive to Penn Virginia under all measures, including earnings, cash flow and net asset value per share. Acquiring acreage at attractive price of approximately $2,900 per net acre net of:
• Net production value of approximately $105 million ($35,000 per flowing BOEPD);
• Purchase price adjustment of approximately $15 million to reflect net cash flows from effective date to closing;
• Over-riding royalty interest (“ORRI”) in non-acquired acreage valued at approximately $8 million; and
• Midstream assets valued at approximately $20 million;
- Modifying development program by shifting one of the Company’s drilling rigs to Area 2 predominantly in the acquired acreage, which has higher returns and where Penn Virginia will have increased working interests;
- Significant upside potential in the upper Eagle Ford and Austin Chalk formations;
- Approximately $40 million of identified operational synergies; and
- Maintains healthy balance sheet and ample liquidity.
Transaction and asset highlights:
- Expands the Company’s core leasehold position by 35%, or approximately 19,600 net acres (90% held by production), which includes 42 drilling units (35% of which are currently operated by Penn Virginia) and an average working and net revenue interest of approximately 98% and 76%, respectively;
- Significant de-risked inventory of 91 gross locations (including six in drilling units currently operated by Penn Virginia) targeting the lower Eagle Ford formation. XRLs are identified for 43 gross (41 net) locations, including 26 gross (25 net) locations with an average lateral length of 10,000 feet or greater;
- Net PDP reserves of approximately 6.3 million barrels of oil equivalent (“MMBOE”), of which approximately 62% is oil. Total resource potential is estimated at more than 60 MMBOE;
- Includes infield gathering and compression system with no volume commitments or acreage dedications; and
- Transaction is subject to customary purchase price and closing adjustments.
|All numbers are approximate||Pre-Acquisition
|Net production (BOEPD)(1)||10,100||3,000||13,100||30||%|
|Oil – percent of BOEPD(1)||75%||64%||72%||(3||%)|
|Gross drilling inventory(2)(3)||525||85||610||16||%|
|Net drilling inventory(2)||353||81||434||23||%|
|Net treatable lateral length(4)||2.1 MM feet||0.7 MM feet||2.8 MM feet||33||%|
(1) For the month of June 2017.
(2) Pre-Acquisition Penn Virginia net acreage and drilling inventory as of May 9, 2017.
(3) Acquisition locations exclude six gross locations currently operated by Penn Virginia.
(4) Represents total treatable lateral length in net drilling inventory.
John A. Brooks, Interim Principal Executive Officer and Chief Operating Officer commented, “This strategic acquisition is an excellent fit and an important step in our long-term growth strategy for Penn Virginia. It is particularly attractive as it materially increases our Eagle Ford production, acreage and drilling. The transaction is also accretive to all key per-share metrics including earnings, cash flow and net asset value.”
Mr. Brooks continued, “Our operations team knows this area extremely well as the Devon acreage is contiguous to our existing acreage position. We will utilize our technical capabilities to optimize production and reduce operating and administrative costs per BOE on the acquired assets, while significantly increasing the size and scale of our Company. In summary, we are acquiring high quality properties at an attractive price that will provide Penn Virginia many years of drilling inventory with enhanced economics even in today’s commodity price environment.”
Lager 3H Well Update
As a result of the Devon acquisition, Penn Virginia will increase its working interest in the Lager 3H well located in Gonzales County, Texas from approximately 41% to 96% and remain the operator. The well has been on line for 77 days with cumulative production of 116 MMBOE (73% oil) and currently producing ~1,100 BOEPD. This is the first well that utilized the Company’s slickwater completion design in Area 2 (three string well casing design) of the lower Eagle Ford Shale.
The table below sets forth the Company’s current operational guidance for 2017 and 2018, which has been updated to reflect the acquisition of the Devon acreage.
|Production (Boe/d)||% oil||% oil||% oil||% oil|
|Fourth quarter (exit rate)||11,200 – 12,100||76||%||13,500 – 14,500||79||%||14,600 – 15,200||74||%||21,000 – 23,000||74||%|
|Full year||10,000 – 11,000||74||%||12,600 – 13,700||78||%||10,600 – 11,200||73||%||20,000 – 22,000||74||%|
|Capital expenditures ($MM)||$120 – $140||$125 – $145||$140 – $160||$220 – $240|
- The Company plans to fund its 2017 capital budget with cash flow from operations and borrowings under its credit facility, and expects to fund its 2018 capital expenditures primarily with cash flow from operations;
- On a combined basis, Penn Virginia anticipates lease operating expense (“LOE”), gathering, processing, and transportation expense (“GPT”), and ad valorem/severance taxes on a per BOE basis will be similar to current levels; and
- General & administrative expense, excluding transaction related costs, are expected to be similar on an absolute basis, but approximately 25% lower on a per BOE basis.
The Company will finance the acquisition with new $150 million of committed debt financing and borrowings under the Company’s credit facility. Consistent with Penn Virginia’s strategy to hedge production, upon closing the Company expects to expand its hedging program for a significant portion of the oil and natural gas production associated with this transaction. In addition, Penn Virginia is in discussions with its bank lending group to further amend and increase its reserve-based credit facility beyond the current borrowing base of $200 million.
The Company is committed to maintaining financial discipline and a strong balance sheet with a targeted net debt to EBITDAX of 1.5x or below. Penn Virginia believes it will achieve that level by the end of 2018 through the development of the combined assets.