Ute IPO Will Finance Oil/Gas Exploration, Debt Reduction

Ute IPO Will Finance Oil/Gas Exploration, Debt Reduction

Mark Fogarty
1/19/12

Ute Energy Corp. plans to use the proceeds of an initial public offering of up to $250 million in stock to repay some of its parent company’s debts and for oil and natural gas exploration and development programs in the Uinta Basin of northeast Utah.

The Denver-based firm, founded in 2005 by the Ute Indian Tribe of the Uintah and Ouray Reservation, currently has two revolving credit facilities, one for $500 million and a second lien credit facility of $50 million (a revolving credit facility means that any amount repaid is eligible to be borrowed again).

In a registration filed with the Securities and Exchange Commission on January 5, the company said of its exploration and development efforts “we have a multi-year inventory of development drilling and exploration projects in the Uinta Basin.” It said it had identified “5,791 gross (2,680.1 net) potential drilling locations (609 gross (340.1 net) of which are proved undeveloped), targeting multiple zones in the Green River and Wasatch formations.”

It plans to list on the New York Stock Exchange with the stock symbol UTE. Telephone and e-mail communications to Ute Energy president Joseph N. Jaggers were not returned. The SEC mandates a company “quiet period” around the time of stock offerings.

Credit Suisse and Goldman Sachs are underwriting the stock offering.

The company noted that 60% of its acreage and 62% of its potential drilling sites were on tribal land or leased from the tribe.

In its S-1 filing it noted “We have accumulated approximately 162,695 net leasehold acres in the established and highly prospective Uinta Basin, approximately 94% of which are undeveloped. As of Sept. 30, 2011, our estimated net proved reserves were 35.1 MMBoe (million barrels of oil equivalent), approximately 23% of which were classified as proved developed and approximately 88% of which were comprised of oil.”

Prior to this initial stock offering, the company said it had changed its focus.

“During 2010, we shifted our focus from participating primarily in non-operated positions to establishing a significant portfolio of operated acreage and growing our asset base primarily through operated drilling activities.” As part of this change, the firm, which employs 44 people (it has a second location, in Fort Duchesne, Utah), hired Jaggers, who had been president of Bill Barrett Corp., another oil and natural gas company.

The firm said it started drilling “our first operated well in our Randlett project area in April 2011. We had drilled 22 gross (22 net) operated wells as of September 30, 2011 with a 100% success rate.”

It also said it had deployed “ a second operated drilling rig to the basin in November 2011, and we expect to deploy a third drilling rig by mid-year 2012…Our 2012 drilling program contemplates the drilling of approximately 123 gross (109.7 net) operated wells utilizing two operated drilling rigs for the full year.”

Ute Energy plans to develop drilling locations “primarily through vertical drilling and utilization of multi-stage fracture stimulation techniques. We continue to evaluate the potential for horizontal drilling to target zones such as the Uteland Butte, the Mahogany Oil Shale and the Black Shale/G-1 Lime as well as the potential for enhanced recovery techniques, such as waterfloods, to improve results and increase oil and gas recoveries.”

The $99.7 million asset firm said in the S-1 “Our total 2012 capital expenditure budget is expected to be approximately $315 million, consisting of approximately $297 million for drilling and completion costs, of which 74% is for operated wells.” It is also a partner in other wells it does not operate.

On November 30 of last year, Ute Energy  “acquired approximately 29,281 net fee, state and federal acres with 751 identified potential drilling locations in Horseshoe Bend and approximately 6,062 net fee and allotted acres in Randlett with 221 identified potential drilling locations, for approximately $100 million in cash.

“We operate all of the approximately 6,062 net acres acquired in Randlett and substantially all of the approximately 29,281 net acres acquired in Horseshoe Bend.”

It had net earnings of $11.6 million in 2010 and $50.7 million for 2011.

The firm said it did not expect to declare dividends on the IPO. In fact, “we anticipate that our new credit facility will restrict the payment of dividends on our common stock.”

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