Warren Resources Inc. (NASDAQ: WRES) is committing $325.5 million to buy essentially all of Citrus Energy’s Marcellus Shale assets in Wyoming County, Pa.
The acreage is considered by Warren to be “core of the core.” The company will pay Citrus and two working interest owners by issuing $40 million in WRES stock at $6 per share. It will borrow money to pay the remainder of the price.
“The deal is a transformative acquisition that doubles Warren’s reserves and triples Warren’s production,” said David Deckelbaum, director of exploration and production at Keybanc Capital Markets. “Potential further upside looms in the upper Marcellus and potential downspacing.”
Lance Peterson, president and co-founder of Citrus, will join Warren on its board upon closing of the acquisition in early August. Key Citrus personnel will be retained.
WRES plans to hedge 50% to 75% of the production from Citrus’ assets.
The acquisition includes roughly 5,300 net acres that currently produce 82 million cubic feet per day (MMcf/d) of gas with total proved reserves of 208 Bcf, 55% proved developed producing, according to estimates by Netherland, Sewell & Associates Inc., Warren's independent petroleum engineering firm.
Warren said the purchase gives the company a substantial new basin platform in the Marcellus and adds a new core area to Warren's existing California oil and Wyoming natural gas assets.
”This acquisition provides Warren with scale and diversification into a new core basin and leverages Warren's engineering and operational expertise in exploiting known geologic resources,” said Philip Epstein, Warren's chairman and CEO. "We are acquiring some of the most economic wells in the 'core-of-the-core' Marcellus.”
Epstein said his technical teams are optimistic about the potential to identify additional reserves, both in the Lower and Upper Marcellus.
“We believe that we can achieve strong production results in both of these zones. Additionally, we are excited to have Lance Peterson join our board upon closing of the acquisition and welcome the expertise that he and his team will bring to Warren,” Epstein said.
Warren said the acquisition adds an area where some of the top-performing Marcellus wells have been drilled to date. Wells being acquired generate substantial cash flow to fund future drilling and completion expenses in the Marcellus.
Warren also noted:
• Acquired assets will be 100% operated by Warren, are all HBP and are complemented with complete midstream infrastructure.
• Pro forma net production will increase by more than 200% from about 36 MMcf/d to about 118 MMcf/d.
• Warren's operating and technical teams will expand.
• The transaction will be highly accretive.
Peterson said his team has built a tremendous asset in a short time.
“The team is poised to execute on additional opportunities in the Marcellus, which will create significant growth potential for Warren and its shareholders,” he said. “I'm excited to become a shareholder and director and look forward to helping Warren develop into a major player in the largest natural gas producing field in the United States."
BMO Capital Markets served as financial advisor and Thompson & Knight LLP served as legal advisor to Warren. Jefferies LLC served as financial advisor and Vinson & Elkins LLP served as legal advisor to Citrus.
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