Several exploration and production companies have recently acquired assets from peers that over-levered during the recession and ended up in bankruptcy. This acquisition strategy will accrue long-term benefits to the companies involved as some of the assets are quite valuable and located in some prominent shale plays.
IN PICTURES: Digging Out Of Debt In 8 Steps
Bankruptcies and Buyouts
TXCO Resources (Pink Sheets:TXCOQ) filed for bankruptcy in May 2009, after violating debt covenants and receiving a going concern warning from its auditors.
Eight months later, Newfield Exploration Company (NYSE:NFX) and Anadarko Petroleum Corp (NYSE:APC) announced an agreement to purchase the assets of TXCO Resources located in the Maverick Basin in Texas. Newfield Exploration picked up 350,000 gross acres for $217 million, while Anadarko Petroleum bought 80,000 net acres for $93 million.
Anadarko Petroleum was already involved with TXCO Resources on many wells prior to the bankruptcy, and will increase its working interest to 75% with the purchase. St. Mary Land and Exploration (NYSE:SM) will hold the remaining 25% on some of the acreage.
Eagle Ford Shale
While most investors may not recognize the Maverick Basin, the acreage comes with rights to drill to the Eagle Ford Shale; one of the fastest growing shale plays in North America. TXCO Resources said prior to bankruptcy that its acreage had nearly 2000 drilling locations to the Eagle Ford Shale.
TXCO Resources also held leases on its acreage to other formations, including the Pearsall Shale, and the Glen Rose and Georgetown oil plays. Presumably, these drilling rights now pass to Newfield Exploration and Anadarko Petroleum.
TXCO Resources also had acreage in the northern part of where current Eagle Ford Shale development activity is centered. This acreage is near where Petrohawk Energy (NYSE:HK) is about to test out the first development wells in an Eagle Ford Shale oil prospect. Petrohawk has 89,000 net acres at its Red Hawk field in Zavala County, and has already spudded the first well there. The wells are also shallower here at 5000 feet and may cost less to drill and complete.
Magnum Hunter
Another exploration and production company that has taken advantage of the credit crunch is Magnum Hunter Resources (NYSE:MHR), a small cap company with onshore and offshore assets across the U.S.
Magnum Hunter Resources purchased the assets of Triad Energy Corporation, a private oil and gas company also in bankruptcy proceedings, for $81 million back in October 2009. Triad Energy had an acreage position in the Appalachian Basin, including 47,000 net acres that are prospective for the Marcellus Shale, and a 55-mile pipeline that was already in operation serving the area.
Bottom Line
The energy sector is still a cyclical business, and a few exploration and production companies picked over the assets of some peers that couldn't navigate the credit crunch and lower commodity prices, and ended up in bankruptcy. Consider this value investing in the energy patch. (Learn about factors that affect oil prices in our article, What Determines Oil Prices?)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
