Legacy JV AnalysisI was confused why this sold off yesterday so I did a little analysis of the limited details they gave us in the press release.
On the non Blood Tribe lands Legacy paid $8 million for 16640 net acres, or just over $480/acre. This seems like a good price since this land isn't proven. You can buy leases in parts of the Niobrara for a lot less than that. I am not sure of Bowood's average price per acre, but I bet they made a pretty nice return on that investment.
On the Blood Tribe lands, Legacy will pay 80% of the first two wells. I am going to estimate that the wells will cost 5 million each, which makes a payment by legacy of 8 million for a 50 percent interest in 8 sections, ie 2560 net acres. Based on the estimated well cost, that makes Legacy's acquisition price per acre 8,000,000/2560= $3,125/ per net acre. This is certainly a lucrative deal for Bowood, which leads me to my next question.
If Legacy decides to acquire more acreage from Bowood, stated to be done on a rolling option basis, would the terms of the deal be the same as the first one, ie Legacy paying 80% of well cost for a 50% working interest? That part of the press release was little unclear to me, what are the trems of the option?
Even if the terms of the future option acquisitions by Legacy are the same, I think this is a great deal for Bowood because if the first to wells produce, that should provide some cash flow to help pay for addtional wells with Legacy. Not to mention that Bowood has the potential to get all of the Blood Tribe lands drilled while only paying 20% of the cost while retaining 50% revenue interest.
If all the land ends up getting farmed out to Legacy, then Bowood will still have 58,500 net acres, with 80% of the drilling paid on the bulk of it.
Opinions?
I have been following this for a while and bought in today at .62