Upstream energy partnership QR Energy L.P. (QRE) has agreed to acquire certain oil properties in the Arkansas, Louisiana and Texas (Ark-La-Tex) area from an undisclosed private seller for $110 million in cash.
As of June 1, the assets – adjacent to QR Energy’s existing holdings in the region – hold an estimated 6 million oil-equivalent barrels (:MMBOE) in proved reserves (92% oil, 99% proved developed) and will add 900 BOE (92% oil) to the onshore outfit’s daily production. Other attractive characteristics of the Ark-La-Tex properties include low decline rate of approximately 7–8% annually, reserve life of approximately 18.3 years, active hedges, as well as low-risk drilling locations.
The potential acquisition – which is likely to be sealed by early Aug subject to customary closing conditions – is expected to be immediately accretive to Houston-based QR Energy’s cash flows. Importantly, the addition of the acreage will boost growth prospects of the partnership in the East Texas field, one of the country’s largest onshore oil plays. Following last year’s twin transactions, QR Energy already possesses significant development opportunities in the region.
New York-listed QR Energy, which plans to finance the deal through a combination of cash and credit, is engaged in the acquisition, exploration, and development of oil and gas properties. The partnership’s operations are concentrated primarily in the Texas, Mid-Continent and Gulf Coast regions.
With a juicy distribution yield of 11%, a business model focused on operational efficiencies and attractive acquisitions/growth projects, QR Energy provides investors with a steady, predictable income stream. However, the partnership’s exposure to the inherently cyclical and volatile exploration and production sector offsets these strengths and remains a key area of concern.
As a result, QR Energy currently retains a Zacks Rank #3 (Hold), implying that it is expected perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, one can look at Delek Logistics Partners L.P. (DKL), TC PipeLines L.P. (TCP) and Summit Midstream Partners L.P. (SMLP) as good buying opportunities. These energy pipeline partnerships – sporting a Zacks Rank #1 (Strong Buy) – have solid secular growth stories with potential to rise significantly from current levels.
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