Legacy Reserves LP (LGCY) has a new set of mature, low-decline gas assets to explore in East Texas while simultaneously working a joint venture (JV) on the other side of Texas, in the Permian Basin.
Legacy’s $440 million East Texas transaction combines assets from affiliates of Anadarko Petroleum Corp. (APC) and Western Gas Partners LP in two transactions. The deal includes related gas gathering and processing assets and more than 500 miles of pipeline.
The assets consist of 89,000 net acres in Anderson, Freestone, Leon, Limestone and Robertson counties, Texas. They contain estimated proved reserves of about 420 billion cubic feet equivalent (Bcfe). Third-quarter 2015 production is an estimated 70 MMcfe/d, yielding a proved reserves-to-production ratio of 16.4 years.
The gathering system includes a 502 MMcfe/d processing plant with access to five major gas markets, said David Kistler, co-head of E&P research, Simmons & Co.
Kistler said the deal is slightly positive news for Anadarko but also looks to be accretive based on an assumption of $40 million in annual EBITDA from the asset.
“The transaction improves Legacy’s production composition [heavier oil mix] and allows for the allocation of capital to more economic portions of the portfolio” such as the Denver-Julesburg Basin and the Eagle Ford, he said.
The transaction was financed using Legacy’s liquidity under its revolving credit facility. The company said assets can support more than $250 million in additional borrowing capacity.
Paul Horne, Legacy's president and CEO, said the company has used its liquidity to position itself for 2016 and beyond.
“This acquisition represents a material entry into East Texas, a region we have wanted to enter for several years due to its long-lived, low-decline, low-cost nature and high potential for bolt-on acquisitions,” Horne said. “These high-quality assets combined with the upside optionality of recompletions and a contango gas-curve make this a very attractive acquisition for us.”
Legacy is also teaming up for its ventures in the West.
Legacy also said July 6 that it had entered a joint development agreement (JDA) in the Permian with TPG Special Situations Partners (TSSP), an affiliate of TPG’s global private investment firm.
The deal allows targeted development on about 6,000 of Legacy’s net acres, or about 15% of Legacy’s horizontal Permian position in the Spraberry, Wolfcamp and Bone Spring. The target area has about 150 horizontal locations.
TSSP will initially commit $150 million and could expand that amount up to $750 million.
As part of the JDA, Legacy will transfer 87.5% of its working interest to TSSP. The interest will be returned to Legacy when certain return thresholds are met, according to Baird Energy’s Daily Dirt report.
The companies will share an area of mutual interest as well. Legacy will offer to TSSP at least 50% of its interest in any other horizontal Permian development opportunities under the same terms.
The JDA enhances Legacy’s motivation and willingness to expend resources to “core up” drilling units in the Permian, the company said in a press release.
Working with TSSP also expands acquisition opportunities through its structure and partner for acquisitions that require higher levels of drilling activity than Legacy would likely otherwise pursue.
Jefferies LLC was sole financial adviser and Andrews Kurth LLP was legal adviser to Legacy in this transaction. Vinson & Elkins LLP was legal adviser to TSSP.
Contact the author, Darren Barbee, at dbarbee@hartenergy.com.
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