Noble Energy Acquires Rosetta Resources for $2.1B

Noble Energy Acquires Rosetta Resources for $2.1B

The focus this week has been around the ice breaking transaction between Rosetta Resources (NASDAQ: ROSE) and Noble Energy (NYSE: NBL), with Noble acquiring Rosetta in an all-stock transaction valued at $2.1 billion. The current conditions have created uncertainty within operators that are leveraged, especially those that were positioned for a much higher commodity price environment. In Rosetta’s case, the deal was based off of net debt of $1.8 billion. Some analyst are expressing that this could be the deal to open the door to more consolidation in upstream activity following the M&A standstill this year.

Rosetta Resources 2015 Capital Plan

noble-rosetta-2015-capitalRosetta is expecting capital expenditures of about $350 million for the year, which was originally announced at $950 million in November of last year, with production being in the range of 58 – 62 MBoe per day. They expect to drill 8-10 gross operated wells, while completing 18-20 gross operated wells from Q2’15 to Q4’15, spending about $200 million on drilling and completion activities in the Eagle Ford and Permian basins. Rosetta has about 75% of its forecasted production hedged with a value of about $188 million for 2015.

Eagle Ford Activity

Rosetta plans to operate an average of 2 rigs while having 49% of the capital allotted to Eagle Ford. In the first quarter, 3 wells were drilled and 14 wells were completed, only 11 of which were brought online. Rosetta had ended 2014 with 55 drilled wells in Eagle Ford awaiting completion, now down to 44 uncompleted wells. During the quarter, they employed a new frac design on three Gates Ranch wells with higher volumes of proppant and tighter cluster spacing. These had an average of 40 stages and a lateral length of around 8,000 feet. They also tested several opportunities for infill wells and refracing.

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Permian Activity

In the Permian, Rosetta’s rig activity will be 2-3 rigs on average for the year, with 29% of the budget. During the first quarter, they drilled 6 gross operated wells and completed three gross wells, which were brought into production. The three completed wells were in Reeves County, focused primarily in the Wolfcamp “A” bench. They plan to drill two more gross operated wells and complete four during the remainder of 2015. They also acquired two horizontal drilling permits in Reeves County in January, 2015, with permitted depths of 13,000 feet.

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2015 Second Quarter Outlook

In the second quarter of 2015, Rosetta’s production range is expected at 57-60 MBoe/d. This would be similar to their Q1’15 production of 58.4 MBoe/d, which is at the low end of their guidance for the year and a ~17% growth over Q4’14. Rosetta expects to spend ~$55 million in capital investments in the second quarter as well.

How Noble and Rosetta Line Up for the future

Besides the obvious facts of Noble’s acquisition of Rosetta to enter the Permian and Eagle Ford (i.e.,,expanding from Noble’s focused areas of DJ Basin and Marcellus) what makes this deal valuable for Noble Energy and how will the they line up? Many have said that with Noble adding to their already diverse portfolio, they will lose operational focus. It is not clear at this time what the value is, unless they will continue to aggressively develop these assets in the future.

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What is clear, however, is that Noble has its eyes on the two most productive shale regions in the US. Their purchase of Rosetta, a much smaller player, came at a time when Rosetta was hurting (it had a loss of $539M in net income last quarter and had over $1.8B in net debt, more than its $1.5B market value).With no clear sign of where crude is headed in 2015, this could’ve simply been a necessary—and wise—move for both Noble and Rosetta.

 

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