This news release should be read together with the news release “Extraction Oil & Gas Announces Private Placement of Common Stock” issued concurrently with this news release.
DENVER, Dec. 12, 2016 (GLOBE NEWSWIRE) -- Extraction Oil & Gas, Inc. (NASDAQ:XOG), (“Extraction,” or the “Company”), an oil and gas exploration and production company with primary assets in the Wattenberg Field in the Denver-Julesburg Basin of Colorado (“the DJ Basin”), today announced that it has recently closed on two separate transactions from unrelated sellers to acquire approximately 16,800 net acres in the DJ Basin for aggregate cash consideration of $177 million. Net proceeds from the Company’s private placement of common stock announced today will be used, in part, to replenish cash used to pay for the acquisitions. The acquisitions include de minimis oil and gas production and approximately 425 net 1-mile equivalent drilling locations, with offsetting results from other operators that are comparable to some of the best wells in the Wattenberg Field. Extraction believes, based on management’s current assumptions and estimates, that economic breakeven prices will be below $45 per barrel (WTI) across the majority of the acreage. The sellers were not disclosed.
September 30, 2016 liquidity pro forma for the closing of our IPO, the October 2016 Bayswater acquisition and the two DJ Basin acquisitions today and net proceeds from the common stock offering was approximately $1,094 million, consisting of $644 million in cash and cash equivalents and $450 million of availability under our revolving credit facility.
Commenting on recent events, Extraction’s Chairman and CEO Mark Erickson said: “Extraction remains in a strong financial position with ample liquidity and balance sheet flexibility. We intend to use the remaining $265 million of proceeds from today’s private placement to selectively add to our DJ Basin leasehold position. As discussed in our recent guidance conference call, Extraction intends to opportunistically continue to add to its premier DJ Basin acreage position and is actively evaluating several opportunities that meet its investment criteria.
“As provided in our formal guidance, Extraction has already budgeted $60 million to $80 million, which is not included in the $265 million of additional liquidity, for further organic leasing. In the near-term, we believe that we are positioned to add substantially to our existing high-quality drilling location inventory. Extraction is currently targeting assets that have demonstrated top-tier well results with a particular focus on more rural areas, oily areas in the Basin that are characterized by lower gas-oil ratios (GOR) and are more oil-prone. These oil-prone areas should substantially benefit from the application of our new and evolving enhanced completion techniques.”
Extraction’s Enhanced Completion Program
Extraction’s enhanced completion design features greater volumes of proppant per lateral foot which have yielded improved EUR throughout our study areas, both in the DJ Basin and in other basins, and confirmed through testing by Extraction and other operators. Extraction’s technical team has significant experience with these enhanced completion techniques, both with Extraction and other leading DJ Basin operators. Early results indicate the enhanced completion design is most effective in the lower GOR areas of the Niobrara Formation. The intent of implementing enhanced completions in the Company’s Windsor area is to demonstrate the actual average EUR increase when employed across a large program area. We have commenced an expanded enhanced completion study on approximately 48 Niobrara wells being completed over the next several months in our Windsor Area.
Within Extraction’s Northern Extension Area, enhanced completions by other operators have demonstrated dramatic well performance improvements in both the Niobrara and Codell formations. Here, Extraction expects to drill at least one well in each of the Codell and Niobrara formations during 2017, with results expected around year-end.
Mr. Erickson continued: “At the time of our initial public offering, we planned to incrementally increase the number of enhanced completions going forward. However, after evaluating results from our drilling program and the results of other operators in the Basin post our initial public offering, it became clear that the full transition to enhanced completion design is in the best interest of Extraction’s shareholders. Currently, Extraction is applying this technique to its oil-prone Niobrara completions in the Windsor development area which will result in the previously disclosed 90-day delay in projected production ramp.
“We believe our enhanced completion program will lead to strong growth in production and reserves during the second-half of 2017 and beyond. As disclosed in our formal guidance, we expect to exit 2017 at a production rate of 65,000 to 70,000 barrels of oil equivalent per day (Boe/d) and in 2018 we expect production to increase by at least 75 percent, as compared to 2017’s projected average daily production rate of 48,000 to 54,000 Boe/d.
“Additional positive impacts to 2018 production, already included in our guidance, are expected to result from drilling acceleration with the addition of our third drilling rig early in the first quarter of 2017, as compared to the initial plan of adding the rig in mid-year 2017. While adding the rig earlier will require additional 2017 CAPEX, as previously disclosed, it should result in higher production volumes during the first half of 2018 that would have otherwise occurred later in 2018. At a three-rig pace of development, we expect to exit 2017 with an inventory of 130 wells in process with an average lateral length of 1.9 miles, setting up strong 2018 production growth.”
About Extraction Oil & Gas, Inc.
Denver-based Extraction Oil & Gas, Inc. is an independent energy exploration and development company focused on exploring, developing and producing crude oil, natural gas and NGLs primarily in the Wattenberg Field in the Denver-Julesburg Basin of Colorado. The Company's common shares are listed for trading on the NASDAQ under the symbol: “XOG.” For further information, please visit www.extractionog.com.
Cautionary Note Regarding Forward-Looking Statements
Certain statements contained in this press release constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included herein concerning, among other things, planned capital expenditures, increases in oil and gas production, the number of anticipated wells to be drilled or completed after the date hereof, future cash flows and borrowings, pursuit of potential acquisition opportunities, our financial position, business strategy and other plans and objectives for future operations, are forward-looking statements. These forward-looking statements are identified by their use of terms and phrases such as "may," "expect," "estimate," "project," "plan," "believe," "intend," "achievable," "anticipate," "will," "continue," "potential," "should," "could," and similar terms and phrases. Although we believe that the expectations reflected in these forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties. These forward-looking statements represent our expectations or beliefs concerning future events, and it is possible that the results described in this press release will not be achieved. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of our control, that could cause actual results to differ materially from the results discussed in the forward-looking statements.
Any forward-looking statement speaks only as of the date on which it is made, and, except as required by law, we do not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. New factors emerge from time to time, and it is not possible for us to predict all such factors. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in the prospectus filed with the SEC in connection with our initial public offering and in subsequent public filings with the SEC. These and other factors could cause our actual results to differ materially from those contained in any forward-looking statement.