After choosing to delay drilling in the fourth quarter of 2018 and reconfiguring its drilling program to emphasize two-mile laterals, Tulsa-based Midstates Petroleum Company provided a strategic update this week. It also announced 2018 year-end SEC reserves along with the preliminary 2018 operational results and later revealed a $200 million sale of assets.
Leadership also restated it is not above reaching out for a sale of the company or an acquisition to expand the firm.
David Sambrooks, President and Chief Executive Officer, commented, “I am very pleased with our operational accomplishments in 2018. We reduced expenses, decreased well downtime and executed a significant workover program that meaningfully increased base production during the year. We also improved liquidity by paying down $100 million of debt and generated free cashflow for the year while executing an approximately $98 million capital program. Finally, our year end 2018 reserve report continues to demonstrate the underlying value of Midstates.”
Mr. Sambrooks continued, “We forecast continuing free cash flow generation in 2019, which allowed us to announce a $50 million tender offer earlier this year and affords us the opportunity to consider additional cash returns to shareholders going forward. As we look to the future, we remain committed to optimizing our production, minimizing costs and operating efficiently, as well as pursuing all opportunities that enhance us financially and operationally.”
While announcing the strategic update, the company signed agreements to divest $200 million in certain holdings with closings expected in the first quarter.
The sales consist of separate transactions for an equity interest in a third-party pipeline and WPX’s non-core Nine Mile Draw E&P assets in southern Reeves County, Texas.
“We remain opportunistic as we manage our portfolio with respect to disciplined development and capital execution,” said Rick Muncrief, chairman and chief executive officer.
One sale involves WPX’s 20 percent equity interest in WhiteWater Midstream’s Agua Blanca natural gas pipeline. WPX will continue to be a shipper on the line.
The other sale involves roughly 5,600 net acres and approximately 1,500 Boe/d of production in an area significantly outside of WPX’s core Stateline development in the Delaware Basin.
WPX is reinvesting $100 million of sales proceeds for its purchase of approximately 14,000 surface acres within its Stateline operations.
Strategic Update
Midstates is committed to pursuing all strategic and opportunistic transactions that create significant shareholder value, including a sale of the Company or mergers and acquisitions that provide for greater scale and operational synergies to enhance bottom line profitability. To aid in this pursuit, the Company has retained Houlihan Lokey, Inc as financial advisor and Kirkland & Ellis, LLP as legal counsel.
Midstates’ estimated proved reserves for year-end 2018 totaled 72.5 million barrels of oil equivalent (“MMBoe”), comprised of 25% oil, 27% NGLs, and 48% natural gas. The Company elected to delay drilling in the fourth quarter of 2018 and reconfigured its drilling program to emphasize two-mile laterals. The revised development strategy reduced PUD inventory to 48 locations at year-end 2018, consisting of 31 two-mile laterals and 17 one-mile laterals developed over 3 years within the SEC five-year development window.
At year-end 2018, Midstates’ proved reserves, as prepared utilizing SEC pricing, had a net present value discounted at 10% (“PV10”) of approximately $579.7 million. The Company’s estimated reserves at year-end 2018 were based on the average oil, NGL, and natural gas prices for each month, which were $65.56 per barrel (“Bbl”), $29.50 per Bbl, and $3.10 per million BTUs.
Utilizing flat pricing of $55.00 per Bbl of oil, $24.75 per Bbl of NGLs, and $2.75 per million BTUs, the Company’s year-end 2018 proved reserves had a PV10 value of approximately $425.2 million, 64% higher than Midstates current enterprise value of approximately $259 million.