PennEnergy Resources nearing decision on sale versus IPO, president says

Provided exclusively by Mergermarket, an Acuris Company

PennEnergy Resources, a private equity-backed upstream oil and gas company, expects to make decisions regarding potential monetization strategies in the “not too distant future” and is talking to advisors, said Greg Muse, president.

The Pittsburgh-based company was founded in 2011 by Muse and Chairman & CEO Richard D. Weber. The company received an initial USD 300m equity commitment from EnCap but saw that commitment increased to USD 532m with the additional backing of Wells Fargo Energy Capital. PennEnergy also has USD 250m in borrowing capacity, Muse said.

PennEnergy is focused on developing natural gas acreage in southwest Pennsylvania. It has achieved most of its goals with respect to securing and proving up acreage and is now looking towards potential exit options, Muse said. Those options include a public offering, joint venture or sale, he said. The company expects to begin making decisions regarding those efforts in the “not too distant future,” he said.

PennEnergy has been talking to potential advisors and plans to continue talking to them moving forward, Muse said.

It has proven reserves “well north” of 1.4 trillion cubic feet equivalent (Tcfe), said Muse. The company holds 112,000 “net effective” acres in southwest Pennsylvania in Butler, Beaver and Armstrong counties, according to a company presentation. The actual land area is around 80,000 net acres but the Beaver County acreage—34,300 net acres—is prospective for both the Marcellus and Upper Devonian formations, doubling the net effective acres in that area, the presentation showed. Total reserve potential is 13.5 Tcfe.

Current production is 135 MMcfe/day but the company expects to exit 2017 with production of more than 200 MMcfepd, he said. The company currently has one rig operating and is looking at adding further rigs, Muse said.

The company has established and proven up a stand-alone position in southwest Pennsylvania, said Muse. PennEnergy was purpose-built to be a stand-alone entity to provide a wide range of exit strategies, Muse said. The company could attract new entrants to the Marcellus or existing basin operators, he said. Special purpose acquisition company (SPAC) buyers are also a possibility, said Muse.

In April, Natural Gas Partners-backed Vantage Energy Acquisition [NASDAQ:VEACU] raised USD 480m and is led by the former management of Marcellus-focused Vantage Energy I and Vantage Energy II. On June 28, Osprey Energy Acquisition Corp. filed an S-1 to undertake a USD 250m public offering. The company is backed by former executives of Marcellus-focused Atlas Energy and Atlas Pipeline, where Muse and co-founder Richard Weber were previously executives.

Current offset operators include ExxonMobil [NSYE: XOM]’s XTO Energy and Rex Energy [Nasdaq: REXX], he said. PennEnergy could make an attractive addition to either player, said Muse. However, it is not clear whether XTO Energy has the appetite to expand in the Marcellus and currently Rex Energy is working through some financial challenges, he said. In April 2016, Moody’s downgraded Rex Energy’s debt rating and assigned a negative outlook reflecting its “continued liquidity stress and the risk of default” and withdrew its ratings altogether in late 2016.

Recent consolidation in the Marcellus has been driven by a desire for large, contiguous acreage enabling operators to drill longer laterals, Muse said. He pointed to Rice Energy’s USD 2.7bn acquisition of Vantage Energy I and Vantage Energy II in September 2016, and the recently announced USD 6.57bn bid by EQT [NSYE: EQT] for Rice Energy [NYSE: RICE]. PennEnergy’s stand-alone position makes such lateral-driven consolidation less likely, he said.

PennEnergy owns a midstream subsidiary called Pine Run Midstream that is constructing a dry gas gathering system that serves a portion of the company’s production and represents a USD 75m investment through 2018, he said.

The company previously held a minority stake in wet gas midstream assets in Beaver County operated by EnCap Flatrock-backed Cardinal Midstream II, said Muse. In March, Energy Transfer Partners [NYSE: ETP] acquired the assets, and the sale generated enough cash for PennEnergy to retire its existing debt and change over to conventional borrowing facilities, he said.

by Mark Druskoff in Houston

As seen in the mergermarket, an Acuris company, newsletter on 12/07/2017

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