Southwestern Energy Co. (NYSE: SWN) hit its 2015 divestiture goal with 285 days to spare, selling its East Texas and Arkoma Basin assets the day after divesting its northeast Pennsylvania pipeline assets.
Southwestern said March 20 it executed a definitive agreement to sell the company’s Ark-La-Tex conventional oil and gas assets for $218 million. A private unnamed party purchased about 153,000 net acres for Southwestern.
On March 19, Southwestern picked up about $500 million for its midstream gathering assets in Bradford and Lycoming counties, Pa.
The Ark-La-Tex sale is another positive for Southwestern, which rapidly achieved the company’s plan to sell off $600-$800 million as part of their plan to finance their acquisitions in the southwest Marcellus, said David Kistler, co-head of E&P research, Simmons & Co. The company hit the middle of its dollar target with $718 million in proceeds before sales adjustments.
“Both transactions were anticipated by the company and baked into SWN's forward guidance, leading to no adjustments to fiscal year 2015 production estimates or transportation costs,” Kistler said.
Kistler forecasted that Southwestern will still have a cash flow gap of about $442 million.
While in-line with Simmons’ valuation basis, the sale is nonetheless “slightly positive as it occurred earlier than our expectations.”
Proceeds from both transactions will be used to pay off the $500 million term loan that the company took out in December with the remaining proceeds to pay down the balance of its revolver.
“Combined with the already announced divestiture of our northeast Pennsylvania gathering system, this transaction achieves the net divestiture proceeds targeted as part of the acquisition financing plan,” said Steve Mueller, Chairman and CEO. “With the acquisition financing now complete, we will continue our focus on extracting the long-term value from our premier assets for our shareholders for years to come.”
While removal of the financing headwind is positive for Southwestern, near-term issues with Southwestern’s acquired asset, including a weak 2015 NGL realizations and constrained gas takeaway, still persist, said Tudor, Pickering, Holt and Co.
Kistler said that assuming 15 billion cubic feet equivalent (Bcfe) of production in fiscal year 2014 and 184 Bcfe of reserves at year end 2014, production should be somewhat accretive with reserves slightly diluted.
For production, the Ark-La-Tex deal translates to $31,829 per barrel of oil equivalent per day (boe/d) and $1.19 per Mcfe -- a premium versus Southwestern’s flowing barrel valuation of $26,000 per boe/d, Kistler said.
The transaction is subject to customary closing conditions and is expected to close in the second quarter of 2015.
RBC Richardson Barr advised Southwestern in connection with the transaction.
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