Thursday, July 7, 2011

Delta Petroleum Considers Strategic Alternatives, Including a Potential Sale

Delta Petroleum Corporation, the Denver, Colorado based independent energy company engaged in the exploration for, and the acquisition, development, and production of natural gas and crude oil in the Rocky Mountain region, USA has hired Macquarie Capital and Evercore Partners for advice on strategic alternatives, including a potential sale, the company said in an announcement. Delta's shares lost about 44% of its value since it started divesting its non-core assets about a year ago. On news of it considering strategic alternatives, its share price increased by up to 9% on Wednesday morning trading. Some facts on the company is provided below:

      1.       Market cap – $131.5 million

      2.      Debt - $287.4 million.

       3. A term loan of $25 million from Macquarie Bank is due in Jan 2012 and the company might have to re-purchase $115 senior convertible notes from holders on May 1, 2012, if they exercise their right to do so. Delta’s debt has come down from $531.3 million in Dec 2008 to $259.5 million at the close of Q1 - 2011, due mainly to its divestment of its non-core assets, mainly in Texas and the DJ Basin.

      4.      Assets –
a.      Delta Petroleum’s core assets are in the Vega area of the Piceance Basin, Western Colorado and constitute 22,375 contiguous net acres (86% HBP) including the Vega and Buzzard Creek federal units with 95-100% WI.
Source: Delta Petroleum April 2011 Presentation

b.      Delta’s other assets include non-operated holdings of
                                                              i.      5% in 153 producing wells in the southern region of the Piceance Basin
                                                            ii.      5% carried WI in 75 wells remaining to be drilled.
                                                          iii.      6.07% gross WI in the Point Arguello Unit and related facilities located offshore California in the Santa Barbara Channel.
                                                           iv.      6.25% WI in the development of the east half of OCS Block 451 in the Rocky Point Unit.
                                                             v.      66.1% WI in 17,599 net acres in the Paradox Basin in southwest Colorado and southeast Utah.
                                                           vi.      60.4% WI in approximately 100,000 net acres in Central Utah Hingeline.
                                                         vii.      Interests in approximately 184,000 net acres in the Columbia River Basin, all of which are undeveloped.

        5.      Reserves and production highlights:
a.      Proved Reserves: 134 Bcfe as on 31/10/2010
b.      Production: 45.9 MMcfe/d at year end 2010.
Source: Delta Petroleum 2010 Annual Report & April 2011 Presentation

The following table shows Delta Petroleum's past M&A activity captured in the Derrick Deals database. Hover over bars for additional detail. Data is sorted by year. 

        Analyst Comments
         Derrick estimates the enterprise value to be between $400 - $500 million. This is based on
1. Market cap, Debt, Working Capital Deficit: $131.7 million + $259.5 million (March 2011) + $63.2 million (March 2011). Adding this gives ~ $454 million
2. Production & Acreage metrics: Delta has net production of 7.65 MBOE/d with 91% gas. Using a rate of $35,000 - $40,000/ daily BOE gives a value range of $270 - $300 million. Considering Deltas's undeveloped acreage of 355,000 acres @ $200 - $300/ Acre gives the acreage a value of $75 - $100 million. Therefore, asset value is calculated to be in the range of $400 - $500 million.

Considering both the analysis, Derrick estimates Delta Petroleum's value to be in the range of $400 - $500 million.  


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