- Fremont Petroleum (FPL) is stepping up its U.S. growth strategy with the “game-changing” acquisition of Magnum Hunter Production
- Magnum Hunter, which Fremont will wholly acquire for US$425,000 (roughly A$556,000), operates around 1300 natural gas wells in Kentucky, Virginia and Tennessee
- An initial work program will focus on basic pipeline repairs, while a second program will target more extensive workovers, re-stimulation and side-tracking
- The deal forms part of Fremont’s strategy, unveiled in mid-2020, to acquire under-performing assets with immediate production upside
- Fremont Petroleum remains steady at 0.4 cents per share
Fremont Petroleum (FPL) is stepping up its U.S. growth strategy with the “game-changing” acquisition of Magnum Hunter Production.
Magnum Hunter, which Fremont will wholly acquire for US$425,000 (roughly A$556,000), operates around 1300 long life, low decline conventional natural gas wells located in Kentucky, Virginia and Tennessee. All of the wells are held under production and cover approximately 100,000 acres in the Illinois and Appalachian Basins.
Production from the wells is split with around 80 per cent gas, 17 per cent natural gas liquids and 3 per cent oil, and generates an average of around $1.01 million in revenue each month for Magnum Hunter.
While the field has been producing since 1995 and no significant investment has been made since 2014, Fremont said it is confident it can immediately increase production, revenue and margins.
The lack of investment has meant that roughly 80 per cent of current production comes from just 25 per cent of the wells, with the rest either shut-in or producing at sub-optimal levels.
Fremont plans to undertake an initial 90-day work program, focusing primarily on basic pipeline repairs, which is expected to increase production capacity by roughly 20 per cent. This phase will be funded from Magnum Hunter’s existing cash flows.
A second work phase will target more extensive workovers, restimulations and side-tracking on the 75 per cent of the wells that are currently shut-in or not tied to production.
Daily production is also hampered by limited storage and collection facilities, which Fremont intends to address.
Tim Hart, CEO of Fremont Petroleum, said the deal is “a home run”.
“We have been carefully assessing acquisition opportunities in this part of the United States since early 2020 and patiently pursuing assets where there is a mismatch between underlying value and the purchase price,” he said.
He added that the vast majority of wells across the leases could deliver much more production, which means “the medium-term potential is very compelling without the need to drill one new well.”
Negotiations to acquire the assets began last year when oil and gas prices took a hit from the COVID-19 pandemic and the OPEC price war. Fremont says it was able to recognise the clear benefits of investing in the field and the revenue upside that would come with a strengthening energy price environment.
“[Magnum Hunter] delivers an excellent foundation to aggressively execute [Fremont’s] ‘acquire, enhance and produce’ strategy of growing production by working over a long life, low decline conventional natural gas and oil wells in the Illinois and Appalachian Basins,” said non-executive director Sam Jarvis.
“The transaction increases [Fremont’s] current well count almost tenfold to [approximately] 1500 wells and our near-term objective is to maximise production from this portfolio, deliver dependable and meaningful cash flows which we can deploy to further grow our broader portfolio in a relatively risk-free manner,” he added.
Fremont Petroleum remains steady at 0.4 cents per share as of 1:39 pm AEDT.