HOUSTON (The Deal) -- Houston oil and gas explorer Memorial Production Partners (MEMP) said Monday it agreed to buy oil producing properties in Wyoming from an unnamed seller for $935 million in cash.
Limited partner-owned Dallas oil and gas investor Merit Energy Co. owned the properties, a source said. Neither Merit nor Memorial Production Partners responded to requests for comment.
The partnership expects to close the purchase in the third quarter.
The properties consist of tertiary carbon dioxide floods in two fields in the Bairoil complex in Sweetwater and Carbon Counties. They are 100% operated, cover 6,800 net acres and include 140 producing wells and 166 injection wells. They have a projected average annual proved developed producing decline rate of 5% and estimated proved reserves of 83 million barrels, 59% of which are proved developed, and produce 5,900 barrels per day, 81% of which is oil and 19% of which is natural gas liquids.
"These assets complement our existing portfolio due to their very shallow decline rate, low operating cost structure and low maintenance capital requirements," chairman and CEO John Weinzierl said in a statement. "Given the long-life nature of these assets and the significant remaining oil in place, we expect these assets to create long-term value for our unitholders."
Bill Scarff, president of Memorial Production Partners' general partner Memorial Production Partners GP LLC, said the transaction expands the partnership's presence in the Rockies, lowers risk through a more balanced liquids profile and is an opportunity to acquire a very large resource base with low-decline production, which should provide a stable cash flow stream "for years to come."
On a conference call with analysts and investors, Weinzierl said the seller started with an auction process managed by CIBC, but the partnership ended up negotiating with the company with a team led by development chief Greg Robbins. He said the partnership will be looking at further bolt-on acquisitions for its portfolio.
The partnership said it expects the deal to be immediately accretive to distributable cash flow and net asset value. As a result of the deal, it also boosted its Ebitda guidance for this year to $355 million to $375 million versus $303 million to $311 million previously and its distributable cash flow guidance to $183 million to $203 million versus $158 million to $166 million previously.
JP Morgan analyst Spiro Dounis wrote in a report that the deal implies about a 7.8 times enterprise value to Ebitda multiple, and while it doesn't appear accretive on that basis, he believes that 100% debt financing will result in cash flow accretion. "The assets fit nicely into the MLP [master limited partnership] due to a low 5% decline rate and 39-year proved reserve to production ratio," he wrote.
Memorial Production Partners expects to fund the transaction through borrowings under its $2 billion multi-year revolving credit facility, which carries an $870 million base before any increase for the acquisition. As of April 30, the partnership had $496 million of available borrowing capacity and said it's working with its lenders to complete a redetermination of the borrowing base. Its liquidity position is expected to be more than $200 million after closing.
The partnership intends to hedge up to 85% of projected production volumes related to the acquisition for three to six years.
The Bairoil complex properties were discovered in the early 1900's and began secondary recovery in the 1970s and tertiary recovery under carbon dioxide flood in the late 1980s.
Since its initial public offering in 2011, Memorial Production Partners has expanded from two to five basins and acquired $2.4 billion worth of properties. Earlier this year, it bought producing oil and gas properties in South Texas' Eagle Ford Shale from Alta Mesa Holdings LP for $173 million. Before that it bought $606 million worth of assets in West Texas' Permian Basin, East Texas and the Rockies from affiliate Memorial Resource Development LLC and Natural Gas Partners LP. And in 2012 it bought oil and gas producing properties off the coast of southern California from Rise Energy Partners LP for $271 million.
Citigroup Global Markets Inc. advised Memorial Production Partners, including Zach Jordan and Claudio Sauer, a source said. Locke Lord LLP's Terry Radney provided legal counsel.