$2 Billion Gulfport Buy Shows Drillers Thirsting for Next Play

$2 Billion Gulfport Buy Shows Drillers Thirsting for Next Play
America's shale gas drillers are back to looking for the next big play.

(Bloomberg) -- America’s shale gas drillers are back to looking for the next big play.

On Wednesday, Gulfport Energy Corp. struck a deal to buy acreage in an oil and natural gas field in Oklahoma known as Scoop for $1.85 billion, marking its first foray in a region that Newfield Exploration Co. has devoted most of its capital budget to and Devon Energy Corp. invested almost $2 billion in late last year. Gulfport Chief Executive Officer Michael Moore described the acreage as a “sizeable and scalable footprint in a new operating area.”

The deal underscores renewed interest among drillers in exploring emerging plays outside the heart of the U.S. shale gas boom -- the Marcellus formation of the Appalachian Basin. The number of rigs drilling outside major basins has rebounded to the highest levels since February as prices rallied and a shortage of pipelines carrying the heating fuel out of Appalachia limited drilling there.

“They’re trying to expand into natural gas-producing areas outside of the Appalachia,” William Foiles, an energy analyst at Bloomberg Intelligence, said of the Gulfport deal. The sale could also be a sign that private equity firms are cashing out on some holdings after the surge in gas prices this year, he said.

Natural gas futures have climbed 51 percent this year. Prices gained 6.6 cents per million British thermal units on Wednesday to settle at $3.54 in New York, bolstered by cold weather that’s stoked demand and fueled speculation that a glut of shale supplies will disappear by the end of the year.

The Gulfport deal comprises about $1.35 billion in cash and 18.8 million in shares, the Oklahoma City-based company said Wednesday in a statement. Its stock fell 4.2 percent after the close of regular trading.

Gulfport described the assets as being in a part of the Scoop play that’s rich with natural gas and natural gas liquids. The company said it will complement its existing assets in the Utica shale formation, an Appalachian play.

‘Defining Day’

“Today is a defining day for Gulfport Energy,” Moore said in the statement. The deal will increase cash flow and “solidify Gulfport with core positions in two of North America’s high-return natural gas basins,” he said.

Gulfport separately announced the sale of 29 million shares and $600 million of senior notes to finance the cash portion of the deal. The transaction is expected to close in February subject to conditions. 

Bank of America Corp. acted as financial advisor and Akin Gump Strauss Hauer & Feld LLP served as legal counsel to Gulfport. Jefferies LLC and Vinson & Elkins LLP advised seller Vitruvian II Woodford LLC, a portfolio company of private-equity firm Quantum Energy Partners.

To contact the reporters on this story: Ryan Collins in Houston at rcollins74@bloomberg.net ;Jim Polson in New York at jpolson@bloomberg.net To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net Jeffrey Taylor


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