Tuesday, May 3, 2011

CrownQuest Operating sells Permian Basin package. Package could be valued at $350-$450 million

In January, CrownQuest Operating LLC had initiated the sale of certain of its interests in the Iatan-East Howard field located in Howard and Mitchell Counties, in the Permian Basin. The sale has been completed recently without disclosing the buyer or the value of the asset. BMO Capital Markets had been retained to provide financial advisory services for this transaction.

The Iatan-East Howard field focusing primarily the Clearfork along with San Andres and Wolfcamp formations was discovered in the 1920s. The field has maintained production between 1,000 b/d and 3,000 b/d since 1962. It is surrounded by significant fields such as Howard Glasscock, Snyder, Westbrook and Sharon Ridge.

Package highlights:
-- Concentrated acreage position with ~7,910 net acres (~8,640 gross) which is all HBP
-- 100% CrownQuest operated with weighted average 91.6% WI and 78.4% NRI
-- Shallow decline and long-lived producing base of 1,012 BOEPD net and $18.2 MM annualized net cash flow with Proved R/P of 41 years
-- According to CGA reserve report, effective 1 Jan 2011, total net Proved reserves – 15.142 MMBOE (96% Oil, PUD 23%, NPV10 $246 million)
-- 5.8 MMBO gross technically Proved reserves
-- 19 MMBO gross technically Probable/Possible reserves
-- Low operating cost of less than $17/bbl
-- Booked opportunities include infill drilling, recompletions, improved waterflood conformance and re-fracs
-- Upsides in fully developing the San Andres and Wolfcamp, additional waterflooding and multiple re-fracs; CO2 flood potential, located near a main CO2 pipeline.

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What’s the value of the package???

  • Based on NPV- NPV10 of the net proved reserves of 15.142 MMBOE is reported to be $246 million. In addition, the package includes 5.8 MMBO of gross (4.55 MMBO net) technically Proved reserves. Based on this same NPV model, these additional reserves could be valued at $74 million. This NPV model equates the proved metrics to ~16/BOE. The net Probable/Possible reserves of ~15 MMBO could be valued at $60 million (based on $4/BOE, ie., quarter of NPV model metrics). The total value of the package is estimated to be $380 million.
  • Based on cash flow- With the Reserve Life Index of 41 years and the reported annualized cash flow of $18.2 million, the value of the package is reported to be $770 million (undiscounted).
  • Based on the industry metrics- The average reserve metrics for the Permian Basin run at ~$17/BOE, at which the Proved reserves are valued at $356 million. In addition, the net Probable/Possible reserves of ~15 MMBO could be valued at $75 million (based on $5/BOE). In total the package value goes at $430 million.
With these methodologies, the value of the package could be in the range of $350 million to $450 million.

The following table shows the Permian Basin deals of Q1-2011

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