Crescent Point (CSCTF.PK) hits it again. As of the latest news, it acquired the privately held Ute Energy paying $784M cash a few days ago. With the debt included, the total consideration of the deal goes up to C$861M. Ute's assets are located in the Uinta Basin which is a whole new area for Crescent Point. Is acquiring new lands as exciting as consolidating the old ones? Yes. Does Crescent fear that its magic will go away if it ceases the acquisitions for 6 months? Who knows? The thing is that this Canadian "shark" has eaten temporarily after Ute's acquisition. The shark may be hungry soon. Long live the shark.
I have already captured in one of my previous articles all the acquisitions of Crescent Point during the last 9 months. Crescent Point also acquired from Whitecap Resources (OTCPK:SPGYF) the Beaverhill Lake acreage a few weeks ago. This Beaverhill Lake acreage is relatively small and it is the land that Whitecap Resources had acquired through the recent acquisition of Midway Energy. It is obvious that Whitecap Resources is not interested in drilling across this property and it wants to spend money elsewhere. However Crescent Point is clearly interested in consolidating its third core area (Beaverhill Lake) after the acquisitions in the Lower Shauvanon and Viewfield Bakken core areas.
Crescent Point's CEO also stated a few weeks ago that the company was planning to expand to the USA to increase its oil production. However Ute Energy may add more gas than oil as the Uinta Basin seems to have more gas than oil. An Asian company decided to invest into this natural gas of the Basin just a couple of weeks ago.
On top of that, the Uinta Basin does not produce only light oil and gas as most people think. This Basin showed up on my screen lately again when I was writing an article about the heavy oil players of North America. US Oil Sands, a small Canadian company, announced in May 2012 it had raised enough money to start producing heavy oil from Utah's tar sands for a first-of-its kind project in the U.S.
Uinta Basin ozone
The federal regulators discovered in 2010 an unusual winter weather pattern in the Uintah Basin that causes ozone concentrations to reach potentially dangerous levels in January, February and March. As a result of this phenomenon, several operators like Gasco Energy (GSX), Newfield Exploration (NYSE:NFX) and Kerr-McGee Oil & Gas had to scale back their plans to drill across their properties back then. Ground-level ozone pollution, which is linked to respiratory diseases like asthma, is a well-known summer pollution problem, stemming from the mixing of auto and industrial emissions in sunlight and heat. Finally BSM approved Gasco's revised Uinta gas development plan just 3 months ago.
Crescent Point's Neighbors in the Uinta Basin
The arrival of one of Canada's largest oil and gas producers could herald an uptick in investment in the basin, which lies east of Salt Lake City. This acquisition provides a good benchmark for valuing the assets of other companies which operate in eastern Utah's Uinta Basin. In other words, this transaction could be used as a starting point for the next acquisitions in that area. Needless to mention that this arrival will generate rumors sooner or later like: Who are the neighbors of Crescent Point? Who could be the next prey of this Canadian "shark?"
Ute Energy partners on some of its acreage with Berry Petroleum (BRY), Newfield Exploration and Bill Barrett (BBG) and thus Crescent Point will partner with all 3 of them. In this area, there are also Exxon Mobil (NYSE:XOM), Anadarko (NYSE:APC), EOG Resources (NYSE:EOG) and Devon (NYSE:DVN). However these 4 majors are too big for Crescent to swallow. That being said, let's see the following 3 intermediate producers/neighbors:
- Bill Barrett produces approximately 62,000 boepd (71% natural gas) as of the Q3 2012 report. Based on its Enterprise Value, it trades for just $34,000/boepd. The market cap is just 2,5x the annualized FFO and 1,2x the annual Revenue for 2012. The DCF annualized ratio is 3 which is high but the PBV is as low as 0,85.
As I have already pointed out in my last article, Bill Barrett is currently one of the US-based natural gas producers with the lowest valuation. Current net production from Uinta is approximately 22,000 boepd and the Company has approximately 205,000 net acres there.
- Newfield Exploration produces 136,000 boepd (51% natural gas) as of the Q3 2012 report. Based on its Enterprise Value, it trades for $50,000/boepd. The market cap is 3,1x the annualized FFO and 1,4x the annual Revenue for 2012. The DCF annualized ratio is 3 which is high and the PBV is 0,90.
Newfield's net production from the Uinta Basin hit a high in the third quarter of approximately 39,000 BOEPD or 27,000 BOEPD net. Newfield owns interest in approximately 230,000 net acres in the Uinta Basin.
- Berry Petroleum produces approximately 36,300 boepd (24% natural gas) as of the Q3 2012 report. Based on its Enterprise Value, it trades for $90,000/boepd. The market cap is 3x the annualized FFO and 1,8x the annual Revenue for 2012. The DCF annualized ratio is 3 which is high and the PBV is 2.
Production from the Company's Uinta properties averaged 5,940 boepd, 5% higher than the second quarter. Berry holds 123,000 net acres in the Uinta Basin.
I do not know the next episode for the acquisition strategy of Crescent Point. I do not also know whether this episode will take place soon and which company will be the prey. I just hope the next acquisition of Crescent Point to be beneficial for both parties involved.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in OTCPK:SPGYF, NFX over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.