Natural Resource Partners LP (NRP) has inked a definitive agreement for the acquisition of non-operated working interests in oil and gas properties at the Bakken/Three Forks play in the Sanish Field of the Williston Basin from an affiliate of Kaiser-Francis Oil Company. Subject to customary purchase price adjustments, the transaction is valued at $340 million. This acquisition is a part of the partnership’s inorganic expansion strategy to expand its non-core operations.
Per the agreement, Natural Resource Partners will obtain average working interest of about 15%, including around 5,700 net acres, 186 producing wells and 10 wells at the development phase. Currently, the partnership has estimated the average production capacity of the asset to be roughly 3,100 barrels of oil equivalent per day (Boe/d).
Whiting Petroleum Corporation (WLL), an independent oil and gas company, is currently responsible for operating these assets.
Upon customary approval, the proposed acquisition has an effective date of Oct 1, 2014 and will likely complete in Nov 2014. Natural Resource Partners plans to hedge around 80% of the acquired current production volumes through 2016, with a certain percentage to hedge for 2017 and 2018.
Natural Resource Partners plans to utilize a combination of its borrowings under the credit facility, and portions of proceeds from its recently announced equity and debt offerings to finance the proposed acquisition.
The partnership is currently focused on diversifying its business, primarily though strategic acquisitions. Since 2013, it had invested a total of $550 million for the acquisition of non-coal properties. During the second quarter of 2014, Natural Resources Partners invested a total of $903 million for strategic acquisitions.
Recently, the partnership invested $205 million to acquire VantaCore Partners LP, a privately held limited partnership that specializes in construction materials.
Natural Resource Partners usually acquires assets which are accretive in nature. In the second quarter, the partnership’s oil and gas revenues benefited mainly from the Williston Basin assets acquired in the second half of 2013.
The proposed acquisition will likely boost Natural Resource Partners’ near-term distributable cash flow and is expected to contribute in the range $58–$60 million in 2015 earnings before interest, taxes, depreciation, and amortization (EBITDA). The partnership has updated its guidance for 2014 total revenues and distributable cash flow in the range of $370–$390 million and $205–$230 million, respectively, considering both the proposed acquisition as well as the VantaCore Partners transaction.
Natural Resource Partners’ steady effort on expanding its non-core operations, primarily the oil and gas business, besides maintaining presence in coal division, will allow it to enhance its revenue stream. These initiatives will help the partnership to obtain 50% of its EBITDA in 2015 from other non-coal assets, including 25% from the oil and gas operations.
Natural Resource Partners currently holds a Zacks Rank #3 (Hold). However, some better-ranked stocks in the industry include Foresight Energy LP (FELP) and SunCoke Energy Partners, L.P. (SXCP), each carrying a Zacks Rank #2 (Buy).
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