Sundance Energy Australia Ltd. (SEA), an explorer that’s expanding in the Eagle Ford shale formation of Texas, will look at acquisitions of as much as $200 million as some competitors focus on drilling over deals.
Sundance plans to add more acreage in the Eagle Ford through leases, small purchases and potentially larger acquisitions, Managing Director Eric McCrady said today by phone from Denver. The company, whose shares trade in Sydney, may purchase as much as 25 percent of the more than 50,000 acres it’s evaluating, he said.
“A lot of companies are running a lot of rigs in the Eagle Ford, and people are very focused on drilling the acreage positions they have,” McCrady said. “So that has resulted in a little less competition for smaller deals.”
Sundance’s purchase earlier this week of Eagle Ford assets for an initial $33 million boosts its holdings in the region to 19,500 net acres. It follows Baytex Energy Corp.’s A$1.9 billion ($1.8 billion) offer for Aurora Oil & Gas Ltd. (AUT) to add output in the formation, a focus of the U.S. shale revolution.
“The corporate activity in the Eagle Ford lately highlights the potential there,” Krista Walter, an energy analyst at Morgans Financial Ltd. in Brisbane, said today by phone. With one of its previous acquisitions in the region, Sundance “has done well in reducing costs and increasing efficiencies, so we’d think they could apply the same efficiencies into any new acreage,” she said.
Sundance rose 1.4 percent to close at A$1.06, reversing a decline earlier today and valuing the company at A$581 million. The S&P/ASX 200 Index rose 0.3 percent.
The explorer is focusing on the Eagle Ford and the Mississippian and Woodford formations in the U.S., where energy producers are using more efficient drilling techniques to draw record volumes of oil and gas from shale.
Part of the Eagle Ford acreage Sundance acquired is close to assets held by Anadarko Petroleum Corp. (APC) and Chesapeake Energy Corp., according to McCrady.
The company will probably sell its share of a Bakken asset in North Dakota operated by Hess Corp. and intends to complete a deal within two months, he said. Sundance this week also sold assets in Colorado for $116 million.
Sundance, the second-best stock last year on Australia’s S&P/ASX 200 Energy Index with a gain of 28 percent, had about $30 million of debt and $74 million of cash at the end of March, according to its filing last month.
While it’s not the main focus of its expansion plans, Sundance does see some larger transactions of A$100 million to A$200 million “that we may have a strategic advantage in and may be able to pursue,” according to McCrady.
U.S. drillers are struggling to keep pace with the spending needed to get oil and gas out of the ground. Shale debt has almost doubled over the last four years, according to a Bloomberg News analysis of 61 shale drillers.
“We are cognizant of a number of companies significantly increasing their debt component of their capital structure, and we’ve intentionally kept our capital structure pretty conservative,” McCrady said. “There may be opportunities that shake out down the road, and we would want to be in a position to capture those if and when they materialize.”
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