Harbinger Group Inc. has inked a joint venture for about $725 million with Exco Resources Inc. to create a private oil and gas limited partnership that will purchase and operate Exco's producing U.S. conventional oil and gas assets. The diversified holding company looks to raise its long-term exposure to what it calls a potential cyclical upturn in the natural gas market.
"This is an exciting transaction for HGI that adds a long-life, proven conventional oil and gas business with strong cash flows to our group of diversified businesses," President Omar Asali said. "We believe this deal will create long-term value by anchoring our new energy operating business with a long-duration gas asset at a time when natural gas is trading near historically-low levels."
Exco is an oil and natural gas acquisition, exploitation, development and production company based in Dallas, with principal operations in east Texas, north Louisiana, Appalachia and West Texas.
The partnership will own Exco's conventional oil and natural gas assets in west Texas, including and above the Canyon Sand formation, as well as in the Danville, Waskom, Holly and Vernon fields in east Texas and north Louisiana. The more than 520 billion cubic feet equivalent of estimated proved reserves are about 82% proved developed producing, with long-lived and predictable production profiles. About 84% of the reserves are natural gas.
Exco will continue to operate the assets, which include about 1,400 producing wells and about 124,000 net leasehold acres, of which 91% are held by production.
Under the deal's terms, the purchase will be funded with about $225 million of bank debt, $372.5 million in cash contributed from Harbinger and $127.5 million in oil and gas properties and related assets being contributed by Exco.
In exchange for its cash investment, Harbinger will receive a 75% limited partnership interest in the joint venture and a 50% member interest in the general partner of the venture.
Meanwhile, Exco will get about $597.5 million in cash proceeds as well as a 25% limited partner interest and a 50% member interest in the general partner, for a net 26% total equity interest in the partnership.
Copyright (c) 2012 Dow Jones & Company, Inc.
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