In Pricey Eagle Ford And Permian, Companies Buy Piecemeal

Several independent E&Ps in the Eagle Ford and Permian are acquiring in bite-size pieces, trying to get better prices as they expand their territories.

At EnerCom’s The Oil & Gas Conference, companies talked earnings, efficiency and acquisition, analysts said Aug. 20.

Callon

Callon Petroleum Co. (NYSE: CPE) had announced plans to add a third rig in conjunction with its second-quarter 2014 earnings. But the company said at EnerCom that it would like to bring in one more rig in late 2015, said Mike Kelly, senior analyst for Global Hunter Securities.

The Permian-focused company is also in the hunt for acquisitions in the $100-$200 million range.

The company noted that it is has demonstrated its ability to add acreage through “bolt-on” acquisitions. It has established two new core development fields in Southern Midland Basin since late 2012.

At Pecan Acres in Midland County, Texas, CPE is trying to pool its acreage with RSP Permian Inc. (NYSE: RSPP) to the south and Diamondback Energy Inc. (NASDAQ: FANG) to the north and negotiate deals in which RSPP and FANG would drill wells and CPE would operate them, Kelly said.

With the recent widening in the Midland-Cushing differential, the company said that its production is not high enough to commit firm volumes to a pipeline, but that it might hedge the differential in the future.

Concho

Concho Resources Inc. (NYSE: CXO) acquisition strategy has been to pick up private operators’ acreage two or three sections at a time. The company wants to avoid big block acquisitions that can be more costly, said David Tameron, senior analyst for Wells Fargo Securities.

“The company believes there will be an eventual consolidation with only a handful of companies building out their ‘Permian machines,’” Tameron said.

In the second quarter of 2014, Concho entered into agreements to acquire about 13,000 net acres for an aggregate of $95 million. The new acreage complements existing northern Delaware Basin leasehold.

Long-term, Concho sees itself as one of the Permian consolidators, Kelly said. Its smaller, bolt-on acquisitions fill in gaps and allow for longer laterals.

Swift

Swift Energy Inc. (NYSE: SFY) isn’t shy about its desire to buy in the Eagle Ford, so long as long as the price isn’t too steep.

In the Eagle Ford, Swift recently completed two wells that boasted 3,000 barrels of oil equivalent per day IP rates (39% NGL, 9% condensate) at Whitehurst. It’s the third area Swift has used an improved drilling and completion design, and the results show significant improvement over earlier wells, Patrick Rigamer, senior analyst for Global Hunter Securities, said in an Aug. 1 report.

The company thinks it has another 30 locations available.

Swift is searching for acreage in its core McMullen, Webb and LaSalle counties, Texas and is willing to pay for acreage it thinks is prime rock, but the company will not be paying big numbers, Rigamer said.

In an August investor presentation, the company said it would try to gain more acreage through bolt-on acquisitions.

Swift is also working with a prospective buyer for all of its Central Louisiana properties, but it’s uncertain whether a deal will get done.

“At this point, if no sale of these assets were to occur, we anticipate investing a limited amount of capital in 2015 in low risk projects to maintain the value of these assets, while evaluating future alternatives,” the company said.

Carrizo

Carrizo Oil and Gas Inc. (NASDAQ: CRZO) plans to devote some of its $830 million capital budget to additional acquisitions in the Eagle Ford and Utica.

Tameron said the company is bearish on the outlook of natural gas outlook and is running one rig in the Utica.

S.P. “Chip” Johnson IV, Carrizo's president and CEO, said Aug. 5 that the company has more than offset the gas-weighted Barnett Shale volumes it sold in late 2013 with oil-weighted production.

Johnson said Carrizo continues to look to Eagle Ford expansion “through additional acreage acquisitions and tighter spacing.”

The company recently added 4,000 net acres through bolt-on buys. That brings Carrizo’s additional acreage to 9,500 net acres in 2014.

The company is still in limbo regarding its joint venture with private equity firm Avista Capital Partners. The Utica venture continues but Avista continues to shop its land. It isn’t clear if Carrizo will buy out Avista.

“The transaction remains up in the air, and given Permian acquisition cost we wonder what is Carrizo's true appetite,” Tameron said.