Our net proceeds from the sale of 12,500,000 shares of common stock in this
offering are estimated to be approximately $204.6 million, after deducting
underwriting discounts and commissions and estimated offering expenses. The
net proceeds would be approximately $235.3 million if the underwriters’
option to purchase additional shares is exercised in full. Following the
closing of this offering, we intend to use:
. $100.0 million of the net proceeds to repay the outstanding borrowings
under our revolving credit facility;
. approximately $63.6 million to repay the Gulfport transaction note;
. $30.0 million to repay the outstanding borrowings under our subordinated
note with an affiliate of Wexford; and
. approximately $8.4 million to settle the existing crude oil swaps.
We intend to use the balance of the proceeds from this offering to fund a
portion of our exploration and development activities and for general
corporate purposes, which may include leasehold interest and property
acquisitions, working capital and the post-closing cash adjustment payable to
Gulfport under the terms of the Gulfport transaction. Upon repayment of the
outstanding borrowings under our revolving credit facility, we will have
$90.0 million of borrowing capacity under that facility to further fund our
exploration and development activities and for general corporate purposes.
All borrowings under our revolving credit facility are due and payable on
October 15, 2014. As of September 30, 2012, $100.0 million was outstanding
under our revolving credit facility and bore interest at a weighted average
rate of 3.72% per annum. The amounts initially borrowed under our revolving
credit facility were used to repay in full the outstanding indebtedness under
our prior credit facility and for general corporate purposes. The Gulfport
transaction note, which will be issued immediately prior to the effectiveness
of the registration statement relating to this prospectus in connection with
the Gulfport transaction, is due upon completion of this offering and does
not bear interest unless it is not paid when due.
All borrowings under our subordinated note are due and payable on January 31,
2015 or the earlier completion of this offering. On May 14, 2012, we received
an initial advance of $8.1 million under this note which provides for
aggregate outstanding borrowings of up to $45.0 million. On September 30,
2012, $30.0 million was outstanding under this note. The note bears interest
at a rate equal to LIBOR plus 0.28% or 8% per annum, whichever is lower. Our
borrowings under the subordinated note were used to fund our 2012 drilling
program and for general corporate purposes.
States, is
characterized by an extensive production history, a favorable operating
environment, mature infrastructure, long reserve life, multiple producing
horizons, enhanced recovery potential and a large number of operators.
We began operations in December 2007 with our acquisition of 4,174 net acres
with production at the time of acquisition of approximately 800 net barrels
of oil equivalent, or BOE, per day from 34 gross (16.8 net) wells in the
Permian Basin. Subsequently, we acquired approximately 26,878 additional net
acres, which brought our total net acreage position in the Permian Basin to
31,052 net acres at August 31, 2012 and, after giving effect to the
Transactions, we had 51,709 net acres. We are the operator of approximately
99% of this acreage. As of August 31, 2012, after giving effect to the
Transactions, we had drilled 167 gross (155 net) wells, and participated in
an additional 16 gross (seven net) non-operated wells, in the Permian Basin.
Of these 183 gross wells, 171 were completed as producing wells and 12 are in
various stages of completion. In the aggregate, as of August 31, 2012, we
held interests in 205 gross (185 net) producing wells in the Permian Basin.
Our activities are primarily focused on the Clearfork, Spraberry, Wolfcamp,
Cline, Strawn and Atoka formations, which we refer to collectively as the
Wolfberry play. The Wolfberry play is characterized by high oil and liquids
rich natural gas, multiple vertical and horizontal target horizons,
extensive production history, long-lived reserves and high drilling success
rates. The Wolfberry play is a modification and extension of the Spraberry
play, the majority of which is designated in the Spraberry trend area field.
According to the U.S. Energy Information Administration, the Spraberry trend
area ranks as the second largest oilfield in the United States, based on
2009 reserves.
As of December 31, 2011, our estimated proved oil and natural gas reserves,
pro forma for the Transactions, were 39,460 MBOE based on reserve reports
prepared by Ryder Scott Company L.P., or Ryder Scott, our independent
reserve engineers. Of these reserves, approximately 21.7% are classified as
proved developed producing, or PDP. Proved undeveloped, or PUD, reserves
included in this estimate are from 329 gross well locations on 40-acre
spacing. As of December 31, 2011, these proved reserves were approximately
66% oil, 20% natural gas liquids and 14% natural gas.
We have 916 identified potential vertical drilling locations on 40-acre
spacing based on our evaluation of applicable geologic and engineering
data as of August 31, 2012 and we have an additional 1,122 identified
potential vertical drilling locations based on 20-acre downspacing. These
identified potential drilling locations do not include any potential
horizontal drilling locations. We intend to grow our reserves and production
through development drilling, exploitation and exploration activities on this
multi-year project inventory of identified potential drilling locations and
through acquisitions that meet our strategic and financial objectives,
targeting oil-weighted reserves. Our estimated ultimate recoveries, or EURs,
from future PUD wells on 40-acre spacing, as estimated by Ryder Scott, range
from 102 MBOE per well, consisting of 46 MBbls of oil, 143 MMcf of natural
gas and 32 MBbls of natural gas liquids, to 158 MBOE per well, consisting of
112 MBbls of oil, 113 MMcf of natural gas and 27 MBbls of natural gas
liquids, with an average EUR per well of 135 MBOE, consisting of 93 MBbls of
oil, 102 MMcf of natural gas and 25 MBbls of natural gas liquids. We also
intend to continue to refine our drilling pattern and completion techniques
in an effort to increase our average EUR per well from vertical wells drilled
on 40-acre spacing. We currently anticipate a reduction of approximately
20% in our EURs from vertical wells drilled on 20-acre spacing. Our 2012
drilling plan currently contemplates drilling 48 gross (43 net) vertical
wells on 40-acre spacing and two gross (two net) horizontal wells in the
Wolfberry play. As of August 31, 2012, we were using two drilling rigs and,
upon completion of this offering, intend to increase our drilling program to
six rigs.
We believe the experience gained from our historical drilling programs and
the information obtained from the results of extensive industry drilling
activity in the Permian Basin have helped us reduce the risk and uncertainity
associated with drilling vertical wells on our Permian Basin acreage. We
intend to supplement our vertical development drilling activity with
horizontal wells targeting various intervals in the Wolfberry play. Our
horizontal drilling program is intended to further capture the upside
potential that may exist on our properties and increase our well performance
and recoveries as compared to drilling vertical wells alone.
During 2011, we assembled a new executive team and, beginning with the fourth
quarter of 2011, this team assumed management control of our operations and
development activities in the Permian Basin. With an average of
approximately 24 years of industry experience per person, this team has
extensive experience in the Permian Basin as well as other resource plays in
North America, including significant experience in drilling and completing
horizontal wells. Under the direction of our new executive team, the average
drilling time required to reach total depth, or TD, was shortened by 25% to
14 days during the period from April 2012 through August 2012 from 20 days
during the second quarter of 2011. We also reduced the time from spud to
production from an average of 68 days during the fourth quarter of 2011 to an
average of 56 days during the second quarter of 2012. During the quarter
ended June 30, 2012, our average daily production, pro forma for the
Transactions, was 3,637 BOE/d, consisting of 2,579 Bbls/d of oil, 2,757 Mcf/d
of natural gas and 599 Bbls/d of natural gas liquids, an increase of 13%, or
408 BOE/d, from 3,229 BOE/d, consisting of 2,365 Bbls/d of oil, 2,267 Mcf/d
of natural gas and 486 Bbls/d of natural gas liquids, for the quarter ended
March 31, 2012. This increase was due primarily to improved strategies and
procedures introduced by our new executive team relating to wellbore
configuration, completion, execution, fluid recovery and well pumping
practices that significantly reduced the level of required well remediation
and the associated loss of production. We anticipate further increases in
efficiencies as our new executive team executes on our development strategies
across our acreage base.
The following table provides a summary of selected operating information of
our properties, pro forma for the Transactions. The information is as of
August 31, 2012 except as otherwise noted.
Identified Estimated Net Proved
Potential Reserves at
Drilling 2012 Budget December 31, 2011 Average
Average Locations(1) -------------------------------- ----------------- Daily
Net Working ------------ Gross Net Capex % Production
Basin Acreage Interest Gross Net Wells(2) Wells(2) (In millions) MBOE Developed (BOE/d)(3)
Permian 51,709 87% 916 849 59 48 $150.0-$160.0 39,460 23.9 3,712
(1) Reflects identified potential vertical drilling locations on 40-acre
spacing based on our evaluation of applicable geologic and engineering
data. We have an additional 1,122 gross (1,027 net) identified potential
vertical drilling locations based on 20-acre downspacing. These
identified potential drilling locations do not include any potential
horizontal drilling locations. The drilling locations on which we actually
drill wells will ultimately depend on the availability of capital,
regulatory approvals, oil and natural gas prices, costs, actual drilling
results and other factors.
(2) Includes 50 gross (45 net) wells, of which two gross (two net) wells are
horizontal, for which we are the operator and nine gross (three net)
non-operated wells, of which three gross (one net) wells are horizontal
wells.
(3) During August 2012.
We currently anticipate our 2012 capital budget for drilling and
infrastructure will be approximately $150.0 million to $160.0 million after
giving effect to the Transactions. Of this amount, we plan to spend
approximately $126.0 million on the drilling and completion of 48 gross
(43 net) operated vertical wells and two gross (two net) horizontal wells,
$11.0 million for the drilling and completion of nine gross (three net)
non-operated wells, $6.0 million for leasehold acquisitions and $12.0 million
for the construction of infrastructure to support production, including
investments in water disposal infrastructure and gathering line projects.
During the six months ended June 30, 2012, our aggregate capital expenditures
for drilling and infrastructure after giving effect to the Transactions were
$70.7 million.
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Our principal executive offices are located at 500 West Texas, Suite 1225,
Midland, Texas, and our telephone number at that address is (432) 221-7400.
We also lease additional office space in Midland and in Oklahoma City,
Oklahoma. Our website address is www.diamondbackener.com.