The following press release for an acquisition near your properties was recently
ID: 360595 • Letter: T
Question
The following press release for an acquisition near your properties was recently published. Your capital provider has asked for a brief writeup (essay) on any relevant transactions that provide reserve and production valuation metrics and other pertinent data in assessing your assets. Read the following press release and prepare a summary of the transaction's specifics as it relates to purchase price metrics and any summary statistic(s) that could impact the valuation. Be thorough but direct in your writeup covering the specifics that your capital provider has requested.
Your grade will be based on your ability to determine the most important information, calculation of that information, and your ability to effectively convey that information to your capital provider.
SM Energy to acquire North Dakota assets from Baytex
HOUSTON, July 31
07/31/2014
By OGJ editors w/ additional edits by your instructor
SM Energy Co., Denver, has agreed to acquire 61,000 net acres in Divide and Williams Counties, ND, from Baytex Energy Corp., Calgary, for $330.5 million, effective July 1. The deal is expected to close toward the end of the third quarter.
The properties, 90% operated, produced 3,200 net boe/d in the second quarter, and, as of July 1, 2014, held proved plus probable reserves of 53.5 million boe, 81% of which is oil and natural gas liquids. The proved % of 2P reserves was 56%.
SM Energy will receive interests in 126 drilling spacing units, 81 of which will be operated by the company. Working interest for operated spacing units is expected to range 37.5–50%.
SM Energy says it has seen improvements in its Three Forks program, directly adjacent to the acquired assets, due to faster drilling times and improved completions, with results indicating that recent wells have higher sustained production rates than older wells.
Baytex made the divestiture to pay down debt incurred during its $2.6-billion acquisition of Aurora Oil & Gas, which gave the company 22,200 net contiguous acres in Sugarkane field in the Eagle Ford shale of South Texas (OGJ Online, Feb. 7, 2014).
The company previously sold North Dakota assets to Bakken Hunter LLC, a subsidiary of Magnum Hunter Resources Corp. for $312 million (OGJ Online, May 23, 2012). Baytex says it will continue to assess the market for future divestitures.
Explanation / Answer
Land location-The property is located in Divide and Williams Counties, ND.
Investments by corporate- Corporate giant SM Energy Co., Denver, has invested in properties nearby for the land’s rich resources. It is critical to note that SM Energy Co., has agreed to acquire 61,000 net acres from Baytex Energy Corp., Calgary for $330.5 million.
Land’s richness -The properties, 90% operated, produced 3,200 boe/d in the second quarter, and, as of Dec. 31, 2013, held proved plus probable reserves of 53.5 million boe, 81% of which is oil and natural gas liquids.
Productivity- SM Energy Co., also has stated that it has seen great improvements in its program due to faster drilling times and improved completions, with results indicating that recent wells in the newly acquired property have higher sustained production rates than older wells.
Previous history of the market rate of the nearby land- Baytex also had previously sold North Dakota assets to Bakken Hunter LLC, a subsidiary of Magnum Hunter Resources Corp. for $312 million in 2012.
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