Deal: Bayou City signs $100m drilling JV with STACK-focused Chaparral


[Context: On September 25, Bayou City Energy announced a drilling joint venture of up to $100m with Chaparral Energy in the STACK play. Further details and related links are below.]

Chaparral Energy and Bayou City Energy Announce STACK Drilling Joint Venture

OKLAHOMA CITY, Sept. 25, 2017 (GLOBE NEWSWIRE) — Chaparral Energy, Inc. (OTCQB:CHPE) and Bayou City Energy (BCE) today announced the formation of a drilling joint venture between their affiliates to fund further development of Chaparral’s 110,000-acre STACK position.

“We are pleased to announce our partnership with Bayou City, whose significant investment experience and success in the STACK is a further testament to the value and potential of Chaparral’s Garfield and Canadian County assets,” said Chaparral Chief Executive Officer Earl Reynolds. “Their flexible E&P investment platform and ability to execute on unique, operator-friendly transaction structures will allow us to accelerate our STACK development plans in both Canadian and Garfield counties, while maintaining our low-cost structure and corporate balance sheet.”

Under the Joint Development Agreement (JDA), BCE will fund 100 percent of the drilling, completion and equipping costs associated with 30 joint venture STACK wells, subject to average well cost caps that vary by well-type across location and targeted formations, resulting in a maximum capital commitment of approximately $100 million for the first tranche. The first tranche of JDA wells, which will be drilled and operated by Chaparral, include 17 wells in Canadian County and 13 wells in Garfield County, with the ability to expand the partnership to drill additional tranches in the future.

“We are thrilled to partner with Earl Reynolds and his team at Chaparral in developing these targeted drilling locations in Canadian and Garfield counties,” said BCE Founding Partner William McMullen. “Chaparral has demonstrated a track record of being a consistent, low-cost operator, while still being able to achieve high production rates and strong EURs. We expect the development program to deliver favorable economic returns even in today’s challenging commodity price environment.”

In exchange for funding, BCE will receive wellbore-only interest in each well totaling an 85 percent working interest until the program reaches a 14 percent internal rate of return. Once achieved, ownership interest in all wells will revert such that Chaparral will own a 75 percent working interest and BCE will retain a 25 percent working interest of Chaparral’s leasehold interest in each well.

Chaparral will retain all acreage and reserves outside of the wellbore, with both parties paying lease operating expenses based on relative ownership interests.

Drilling has already commenced on the first joint venture well.

“Chaparral’s tremendous STACK acreage position, coupled with their proven ability to repeatedly deliver strong results while maintaining some of the lowest drilling and completion and lease operating costs in the industry has them well positioned to become a key player within the STACK,” said BCE Partner Mark Stoner. “BCE is excited to enter into this partnership as we work together to unlock the vast potential of Chaparral’s Garfield and Canadian County STACK acreage.”

About Chaparral

Chaparral is an independent oil and natural gas exploration and production company headquartered in Oklahoma City. Founded in 1988, Chaparral is a leading Mid-Continent operator with focused operations in Oklahoma’s fast-growing STACK Play. The company has potential production reserves of more than 1 billion barrels of oil equivalent and approximately 400,000 net surface acres, of which approximately 110,000 acres are in the highly economic, prolific STACK Play.

About Bayou City Energy

Bayou City Energy is a private equity firm founded in 2015 to focus on making investments in the North American upstream oil and gas sector. BCE targets privately negotiated investments through two complementary strategies: providing buyout and growth equity capital for operators with current production and exploitable upside and partnering with operators to provide dedicated drilling capital in off-balance sheet structures. The BCE team, combined with the firm’s advisory board and strategic relationship with Argus Energy Managers, provides operators access to expertise, capital and trusted partnership.

Related Links