Midstates Petroleum Co. Inc. (MPO) has agreed to buy producing properties as well as developed and undeveloped acreage in the Anadarko Basin in Tex as and Oklahoma for $620 million in cash from in a deal that expands the oil producer's resource potential and footprint.
Midstates will buy the assets from Panther Energy LLC, Red Willow Mid-Continent LLC and LINN Energy Holdings LLC (LINE).
Midstates Chief Executive John Crum noted that the deal will have an "immediate positive impact" on the company, while also offering "significant growth opportunities."
He added that the acquisition strengthens and diversifies Midstates' investment portfolio and lowers its overall risk profile.
"Adding this new third focus area provides Midstates the opportunity to build upon our operational strengths and leverage our presence in the Mid-Continent region that we established last year in Tulsa after completing our Mississippian Lime acquisition," he said.
The transaction will be effective April 1, and are expected to close May 31.
The deal add s about 36.4 million barrels of oil equivalent proved reserves that are 45% oil and 21% natural gas liquids, of which 34% are proved developed producing. It increases net current daily production by approximately 8,000 Boe per day, enhances drilling inventory with over 700 repeatable horizontal drilling opportunities.
The transaction also expands Midstates' acreage position with about 140,000 net acres with multiple objectives; and adds roughly 280 gross producing wells that are over 80% operated.
Midstates expects the deal to be immediately accretive in 2013 to cash flow per share, as well as earnings before interest, taxes, depreciation and amortization.
LINE acquired its 40% stake in the property (45% oil 21% NGL) almost 2 years ago in 2011 for $220 million, so they look to be getting $248 m or an 11% return, not much of a gain but lowers their leverage
MPO is down ~7% today on twice normal volume, but its down 24% from its high of 8 trading days ago so hard to assess if today just a continuation of ongoing liquidation by a big holder or if the market does not like the deal, which drastically increases MPO's debt
Linn bought 40% for $220M. It yielded more than 7.5% for the two years they held. Linn doesn't control it so they couldn't improve the infill and cannot stop the sale. In the past 2 years NGLs have tanked and are the only output Linn can't hedge, so the property has declined in value to Linn to the point where they did not outbid for the remainder. The sale nets Linn ~$248M=620*40%. Subtracting the $220M purchase price leaves $28M gain + more than 220*.08*2= ~$63M for the 2 years or $31.6M/yr. Funding cost in that time has been about 6.5% *220M=$17M/yr. So Linn (we) cleared at least $14.3M/yr on the investment. Linn has been depreciating the asset so the accounting gain will be bigger than these calculations. I think it is clear that this property is being sold at a richer price than BRY is being purchased at. Hopefully Linn can use the profits to make more smart buys!
I'm thinking they need to reduce leverage and this will help raise cash for the ratings agencies. Redetermination is coming up and by selling some properties where they "maybe" didn't have enough cash to develop at this time they can dispose of them at a decent price and not really hurt them from a production/reserve standpoint. I don't know when we'll see exactly how much Linn received for the properties.