Alliance Resource Partners, L.P. ARLP recently announced that ithas entered into a definitive agreement to acquire oil and gas mineral interests from Wing Resources LLC and Wing Resources II LLC. The acquisition is valued at $145 millionand the transaction is expected to be closed by August 2019.
In January, the partnership acquired limited partnership interest in AllDale Minerals III, L.P. The acquisition enabled Alliance Resource to own nearly 3,950 net royalty acres indirectly in Permian Basin. The recent buyout of Wing’s assets will facilitate the partnership to own approximately 51,000 net royalty acres concentrated in the Permian Basin, SCOOP/STACK, Bakken and Appalachian Basin.
Focus in Oil and Gas Minerals Segment
The partnership generates income from coal production as well as oil and gas mineral interests located in producing regions across the United States. The recent announcement reflects the partnership’s focus on revamping the oil and gas minerals segment as a growth platform for the future.
Considering higher awareness toward the environment, the consumption of coal has declined in the past few years. The current scenario of coal market is alarming. Thus, coal companies are either merging to lower cost or shifting their focuses. Alliance Resource’ focus on oil-rich assets will help it possess another alternate revenue source.
Per U.S. Energy Information Administration (EIA), crude oil production will increase 1.4 million barrels per day (b/d) in 2019 and 0.9 million b/d in 2020. Production average will stand at 13.3 million b/d in 2020. EIA also projects that U.S. dry natural gas production will average 90.6 billion cubic feet per day (Bcf/d) in 2019, up 8.6% from 2018. A major chunk of U.S. oil production will be generated from Permian Basin.
Fortifying Position in Permian Basin
Permian Basin is situated in western Texas and southeastern New Mexico. The region is rich with petroleum, natural gas as well as potassium deposits and has large economic significance. After completion of the acquisition, Alliance Resource’presence in the Permian Basin will increase by nearly 9,000 net royalty acres in the Midland Basin, with exposure to more than 400,000 gross acres.
Permian Basin’s rich onshore assets make it one of the most prolific hydrocarbon producing regions in the United States. In addition to Alliance Resource, we have already seen some other prominent operator in the oil and energy trying to expand operation in this zone through acquisition. Recently, Chevron Corporation CVX made a bid for Anadarko Petroleum Corporation APC. However, Occidental Petroleum OXY raised bid to acquire Anadarko Petroleum, which compelled Chevron to move out with $1-billion breakup fee. Anadarko Petroleum’s strong presence in Permian Basin made it an attractive option for acquisitions.
Zacks Rank & Price Performance
Alliance Resource currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Units of Alliance Resource have lost about 8% in the past 12 months compared with the industry’s decline of 29.6%.
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