Tuesday, May 17, 2011

Enerplus sells Marcellus package for $575 million. Deal value break-up puts resources at $2.4/boe.

Enerplus agreed to sell a portion of its Marcellus natural gas interests in Pennsylvania, Maryland and West Virginia for estimated proceeds of US$575 million. The sold interests include:
  • Approximately 91,000 net acres, primarily non-operated, in southwest and central Pennsylvania, Garrett County in Maryland and northern West Virginia
  • Contingent resources of 1.6 Tcfe (1.36 Tcfe net) of natural gas as of December 31, 2010.
  • Proved plus probable reserves associated with these leases at December 31, 2010 were 24.5 Bcfe (20.83 Bcfe net)
  • Current production is approximately 5.4 MMcfe/d (4.59 MMcfe/d net). Enerplus’ total production from the Marcellus Shale was 21.27 MMcfe/d (18.08 MMcfe/d) for the Q1-2011.

Upon conclusion of this transaction, Enerplus will retain all of its non-operated acreage in Bradford, Susquehanna, Lycoming, Columbia, Tioga, Wyoming and Sullivan counties in northern Pennsylvania as well as its operated acreage in Clinton County, Pennsylvania, Garrett County, Maryland and Preston County, West Virginia. Enerplus will retain ownership in approximately 110,000 net acres of land with an independent best estimate of 2.3 Tcfe of natural gas contingent resource and 92 Bcfe of proved plus probable natural gas reserves, each as of December 31, 2010. Of this total, approximately 60% (or 66,000 net acres) will be operated by Enerplus.

Value break-up for Reserves and Resources..

  • Proved Reserves or Production- Enerplus’ April 2011 Presentation discloses that the total proved reserves associated with its Marcellus shale assets is 45% of the total proved plus probable reserves (2P) associated with its Marcellus shale assets.
  • Applying the same ratio, the acquired proved reserves would be ~ 9.4 Bcfe (1.57 MMboe). The proved reserves can be valued using the industry benchmark metrics of $10/boe at $15.7 million, which leaves the production metric at ~$20,500/flowing barrel.
  • Alternative way to arrive at the proved reserves- The current production being sold represents 25% of Enerplus’ total Marcellus production. Enerplus had disclosed in their April 2011 presentation that the total proved reserves associated with the Marcellus assets to be 52.4 Bcfe (44.54 Bcfe net). 25% of the total proved reserves is 11.54 Bcfe (1.85 MMboe). Approximately equal to the number obtained through the above methodology!
  • Probable Reserves- The probable reserves involved in this transaction are 55% of the total 2P reserves and are calculated as 11.46 Bcfe (1.9 MMboe). The probable reserves could be valued at $5/boe or a total of $9.5 million.
  • Contingent Resources- Deducting the value of reserves, the contingent resources of 1.36 Tcfe (227 MMboe) have been bought for $549.8 million ($2.4/boe).
A quick look at the significant Marcellus deals with acreage and production metrics

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