Harbinger Group has formed a joint venture with EXCO Resources to create a private oil and gas limited partnership that will purchase and operate EXCO’s US conventional oil and gas assets, for a total consideration of USD725m.
Under the terms of the agreement, the partnership will own EXCO’s conventional oil and natural gas assets in West Texas including and above the Canyon Sand formation as well as in the Danville, Waskom, Holly and Vernon fields in East Texas and North Louisiana.
The more than 520 billion cubic feet equivalent (Bcfe) of estimated proved reserves are approximately 82 per cent proved developed producing, with long-lived and predictable production profiles. Approximately 84 per cent of the reserves are natural gas (55 per cent of current revenues), eight per cent are oil (35 per cent of current revenues), and eight per cent are natural gas liquids (10 per cent of current revenues).
The assets include about 1,400 producing wells and approximately 124,000 net leasehold acres, of which 91 per cent are held by production. Additionally, EXCO and HGI intend to opportunistically add incremental cash flow to the partnership through the acquisition of other mature, conventional assets over time.
"This is an exciting transaction for HGI that adds a long-life, proven conventional oil and gas business with strong cash flows to our group of diversified businesses,” says HGI’s president Omar Asali. “We believe this deal will create long-term value by anchoring our new energy operating business with a long-duration gas asset at a time when natural gas is trading near historically-low levels. Our permanent capital structure enables us to take a long-term view on the value of natural gas, while we benefit from reliable cash streams from conservatively-hedged producing wells. The cash flow from the partnership, together with dividends from our other operating subsidiaries, is expected to comfortably exceed USD100m and more than cover HGI’s existing annual interest and dividend payments. At the same time, we expect the Partnership will retain ample cash flow to reinvest in the business, maintain production and position it for further growth.”
“We are excited to be entering this partnership with HGI,” says Douglas Miller, EXCO’s chief executive officer. “They are long-term investors who share our vision for generating value and upside potential from these assets while exploring further opportunities for both EXCO and HGI.”
