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.  

PDC announced $233 million Capital Program; Projected 19% year-over-year growth in production for 2011

PDC Energy expects production growth of 19% in 2011, as the company moves to accelerate development of oil and liquid assets in the onshore area of the United States. The company plan to spend $233 million in 2011 to develop its various properties in the United States. The company will put 75% of this capital into oil and liquid plays, including the Niobrara Shale and the Permian Basin.

PDC Energy expects to produce between 2.4 million and 2.5 million barrels of oil and other liquids in 2011, up 34% from 2010. The following map illustrates the company’s planned operational activities in 2011.

Niobrara Shale
PDC Energy has 74,100 net acres under lease in the Denver Julesburg Basin in Colorado, with much of this acreage in the Wattenberg Field.  The company plans to drill 14 horizontal wells into the Niobrara in 2011.

Permian Basin
PDC Energy has 12,800 net acres under lease in the Permian Basin, where the company is working in several different areas. In 2011, PDC Energy plans to drill 25 vertical wells there, and recomplete six others. 

The company is working on different formations, with a primary emphasis on the Clear Fork, Spraberry and Wolfberry zones.  Annual production from the Permian Basin is projected to double by the end of 2011, to approximately 75,000  boe.

Other Plays
Despite the emphasis in 2011 on oil and liquids, PDC Energy is not abandoning natural gas development. The company has 56,100 net acres under lease in the Appalachian Basin that is prospective for the Marcellus Shale. The company plans to drill nine wells into this formation on its acreage in West Virginia.  

PDC Energy also has 8,000 net acres under lease in the Piceance Basin in Colorado, and plans to drill 12 wells there in 2011. Other companies involved in the Piceance Basin include, which drilled 125 net wells there in 2010. Occidental Petroleum also operates in this area, and has 120,000 net acres under lease.

The company will leverage its onshore oil properties in the U.S., while still advancing its natural gas production. By targeting the Niobrara and Permian Basin formations, PDC hopes to increase its development of oil and other liquids by 19% in 2011.

Try this free document search tool