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EPL, Nexen in $70.4M Deal

Zacks Equity Research

On Jan 2, 2014, upstream operator EPL Oil & Gas Inc. (EPL) entered into a purchase and sale deal with a unit of Nexen Inc., the Canadian energy explorer that was bought by Chinese offshore giant CNOOC Ltd. (CEO) last year.

Per the agreement, EPL will purchase oil and gas resources located in the shallow-water central Gulf of Mexico (GoM). EPL is expected to pay roughly $70.4 million for the acquisition. Depending on some customary closing conditions, the transaction is expected to be completed by the second half of Jan 2014.

As of now, the to-be acquired properties are producing roughly 900 barrels of oil equivalent per day, of which 95% is oil.  EPL added that as of Sep 1, 2013, the proved reserves of the assets stood at 2.6 million barrels of oil equivalent. Out of the total reserve, oil accounts for 91%.

In order to enhance liquidity, EPL is in talks with lenders for increasing its borrowing base from $425.0 million to $475.0 million, under the senior secured credit facility. Presently, under the revolving credit facility, the company has $130.0 million of outstanding debt.

The news was out in the press release of EPL before the market opened on Jan 2, 2014. The stock opened at $28.39 per share that day, insignificantly lower than the closing price of $28.50 on Dec 31, 2013.

Houston, Texas-based EPL is an independent oil and gas exploration and production (E&P) firm. The company primarily operates in the U.S. Gulf of Mexico.

EPL currently holds a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can consider better-ranked players in the oil and gas E&P sector like Harvest Natural Resources Inc. (HNR) and Clayton Williams Energy Inc. (CWEI). Both the stocks sport a Zacks Rank #1 (Strong Buy).

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