QR Energy's CEO Discusses Acquisition of Oil Properties in Florida Gulf Coast Area (Transcript)
January 3, 2013 4:28 PM ET
QR Energy LP (QRE)
Acquisition of $145 Million of Oil Properties in Florida Gulf Coast Area Conference Call
January 3, 2013 11:00 AM ET
Taylor Miele – IR Manager
Alan Smith – CEO
Paul Geiger – SVP, Eastern Business Unit
Cedric Burgher – CFO
Dan Guffey – Stifel Nicolaus
Kevin Smith – Raymond James
Michael Peterson – MLV & Company
Brett Reilly – Credit Suisse
Welcome to QR Energy’s Acquisition Conference Call. My name is Shira, and I will be your operator for the call. On the line we have Chief Executive Officer, Alan Smith; and Investor Relations Manager, Taylor Miele. (Operator Instructions)
I will now turn the call over to Taylor Miele.
Thank you, Shira, and good morning, everyone. Welcome to QR Energy’s call to discuss our $145 million acquisition of oil properties in the Jay Field in Florida. We issued a press release yesterday after the close that contains details of the transaction, and we also published presentation slides, which are available on our website, qrenergylp.com, on the Investor Relations homepage.
I’d like to remind all listeners that we will use forward-looking statements as defined by securities laws on today’s call. These statements reflect our current views with regard to future events and are subject to various risks, uncertainties and assumptions. Our results may differ materially from those conveyed in our forward-looking statements. For a more complete list of these risk factors, please read QR Energy’s filings with the Securities and Exchange Commission, which are available on our website or on the SEC website at sec.gov.
In addition, certain remarks on the call will be made in reference to estimated oil and natural gas reserves. The estimates of proved reserves referenced on this call are prepared in accordance with our internal estimates as opposed to SEC reserve reporting requirements. Therefore, our internal proved reserve estimates may differ materially from the estimates of our proved reserves prepared by third parties.
Now, I will turn the call over to our Chief Executive Officer, Alan Smith.
Well, thanks, Taylor, and thank you for joining us. Yesterday, we announced the $145 million acquisition of conventional oil properties in the Jay field located in the Florida Panhandle from our sponsor Quantum Resources Fund. As Taylor mentioned, we have posted slides on our website, so please follow along with us beginning on slide 3, which is the acquisition summary.
The Jay field is a mature legacy oil field that has all the attributes we look for – large original oil in place, material predictable production, a low decline rate, low risk development inventory, and a low maintenance capital requirement.
Let’s look at the production and reserves that come along with the Jay transaction. The net production is approximately 2,500 barrels of oil per day equivalent, with a base decline of 9%. The production is 100% liquids, which is 90% oil and 10% NGLs, and we operate 100% of the field. These are fields in close proximity to the Gulf of Mexico. The production receives Louisiana Light Sweet crude oil pricing that currently is receiving a $20 premium over the price of WTI.
The proved reserves are 11.3 million barrels of oil equivalent that are 100% proved developed and 76% proved developed producing. Reserves were also 100% liquids with an 87% oil and a 13% NGL split. The acquisition has a proved reserve life of 12.4 years and the expected maintenance capital is approximately $11 million per year to keep production flat for five years.
I’d also like to point out that there are more than 4 million barrels of high quality probable reserves. The probable reserves consist of low-risk incremental tertiary flood performance and enhancing the processing capabilities of the plant. The shallow decline and low maintenance capital requirements makes this deal immediately accretive to our EBITDA and distributable cash flow. We expect 2013 adjusted EBITDA for the acquisition to exceed $35 million.
We innovated all hedges from our sponsor on a significant percentage of production for Jay through 2017, which we expect will add stability to our future cash flows. This morning’s press release contains a table of our current oil and natural gas hedges post transaction.
We closed the deal last Friday, December 28, and financed it with cash on hand and our bank revolver. We expect to receive $170 million borrowing base increase as a result of this transaction in our recently closed East Texas acquisition, which is expected to result in pro forma borrowing base of $900 million, with a little over $400 million of availability.
Turning to slide 4, here we give you a more specific locator map of the Jay field. Most of the field’s 14,600 acres are in Santa Rosa and Escambia counties in Florida, with a small portion in Escambia County in Alabama. QRE now owns 93% working interest and 76% net revenue interest in the field.
Jay was discovered back in 1970 by ExxonMobil. The original oil in place is about 1 billion barrels of oil and the field has produced about 500 million barrels of oil to-date. It produces from the Smackover carbonate, and we are using tertiary recovery methods, which involves nitrogen and water injection into the reservoir. This field is another example of the benefit of owning large original oil-in-place reservoirs as a small incremental increase in recovery can lead to meaningful additional reserves and value creation for QRE.
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