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Bill Barrett to merge with Fifth Creek Energy

Bill Barrett has agreed to a strategic business combination with Fifth Creek Energy Company, a portfolio company of NGP, in a transaction valued at approximately $649m.

The transaction creates a premier exploitation and production company exclusively focused on oil-weighted rural areas in the Denver-Julesburg ("DJ") Basin.

The combined company will possess significant size, scale, and balance sheet flexibility allowing it to economically develop a combined acreage position of approximately 151,100 net acres and an inventory of 2,865 highly-economic future drilling locations, nearly all of which are suitable for extended reach lateral ("XRL") development. The transaction is expected to close late in the first quarter or early in the second quarter of 2018, and is subject to customary conditions, including approval of the Company's stockholders. 

Acquisition Highlights

Creates premier DJ Basin focused company with a highly contiguous and complementary acreage position that is conducive to XRL development

Pro forma proved reserves of 168 million barrels of oil equivalent (MMBoe) (69% oil) as of December 31, 2016 and pro forma third quarter of 2017 production of approximately 24 MBoe/d (64% oil)

Acquisition adds approximately 81,000 net acres and approximately 2,900 Boe/d (72% oil) of production located in the Hereford Field area of rural northern Weld County, Colorado

Hereford Field drilling results are among the highest rate oil wells drilled in the DJ Basin with seven wells averaging 1,052 Boe/d (84% oil) (two-stream basis) during their initial thirty days of production

Combined company will have substantial scale with approximately 151,100 net acres and a deep inventory of 2,865 undeveloped drilling locations (~95% XRL) that are prospective for multiple Niobrara horizons and the Codell formation, and provide strong weighted average economic returns of 65% at strip pricing

Maintain operational control as 100% of net acreage at the Hereford Field is operated, largely held by production with minimal near-term lease expirations, and established well control consisting of 62 standard reach lateral ("SRL") delineation wells and seven XRLs

Established infrastructure on both assets with low operating costs and current oil differentials to WTI of less than $2.50 per barrel

Initial 2018 plans are to operate three drilling rigs on the combined acreage with anticipated 2018 production of 11-12 MMBoe (~65% oil) and capital expenditures of $500-$600 million

Solid pro forma financial position highlighted by improving leverage metrics, no near-term debt maturities and ample liquidity to fund development

Chief Executive Officer and President Scot Woodall commented, "We are extremely pleased to announce a strategic combination with Fifth Creek. We have been seeking opportunities to expand our core DJ Basin asset base with the right acquisition to ensure the best value creation opportunity for our stockholders. This presents us with a unique opportunity to add a large, undeveloped acreage position at an attractive cost with the potential for decades of high-return drilling locations located in a rural area that is highly complementary to our legacy position. The transaction creates a compelling long-term growth platform that will allow us to deliver strong company-wide margins as we maximize capital efficiency and concentrate on the highest return project areas. We expect to immediately begin employing our operational expertise on the acquired acreage as we implement enhanced completion and flowback techniques. The acquisition is credit enhancing as it significantly strengthens our balance sheet, and increases our ability to deliver higher future cash flow and EBITDAX generation. Fifth Creek has built a premier acreage position and with the support of our new partners, we look forward to developing this asset and building value for all stockholders."

Michael R. Starzer, Chief Executive Officer and Chairman of Fifth Creek, stated, "We are excited by the opportunity to partner with Scot and his team to create a premier company that is focused on oil-weighted rural areas of the DJ Basin. We believe the combined company's world class development inventory and exceptional operating talent will result in an excellent outcome for stockholders. At Hereford, Fifth Creek has been on the leading edge of applying modern completion technology to its wells and is proud to have achieved basin-leading results. We are pleased with the opportunity to partner with a company that has successfully managed its business through the downturn, consistently achieving its operating targets and outperforming expectations. I am confident that Scot and his team will do a terrific job of creating value for stockholders."

Scott A. Gieselman, NGP partner, commented, "The combination of Bill Barrett Corporation and Fifth Creek Energy creates a premier oil focused and rural DJ Basin company with unparalleled growth potential at strong returns. We are proud of our new partnership with the Bill Barrett team given their excellent track record and look forward to participating in the growth of the combined entity."

Transaction Details

Under the terms of the transaction, Bill Barrett and Fifth Creek will each become subsidiaries of a newly formed holding company ("New BBG"), which will become the publicly listed and traded holding company for the combined Bill Barrett and Fifth Creek. In the transaction, Bill Barrett's stockholders will exchange their Bill Barrett common stock for New BBG common stock on a 1-for-1 basis, and Fifth Creek's current sole owner will receive 100 million shares of the New BBG's common stock. Based on the Company's closing stock price as of December 4, 2017, the consideration being delivered to Fifth Creek's owner implies a total transaction value of approximately $649 million on an enterprise value basis, which includes the shares plus the assumption of up to $54 million of debt.

Concurrent with the transaction, the Company also announced that it has agreed to a privately negotiated exchange with a holder of the Company's 7.0% Senior Notes due 2022 (the "Notes"), in which the holder has agreed to exchange $50 million aggregate principal amount of the Notes for newly issued shares of the Company's common stock plus the cash payment of accrued and unpaid interest. The number of shares exchanged will be calculated based on the volume-weighted average price of trading on December 6, 2017 and the value of the bonds will be at 102% of par.

Holders of the Senior Notes that hold a majority of the outstanding aggregate principal amount of each series of Senior Notes have agreed to deliver consents pursuant to which the proposed transaction with Fifth Creek will not be considered a change of control for purposes of the Company's Senior Notes.  

The Board of Directors of both companies have unanimously approved the terms of the agreement. The completion of the transaction is subject to approval of the Bill Barrett stockholders, any regulatory approvals and customary conditions. The transaction is expected to close late in the first quarter or early in the second quarter of 2018.

Pro Forma Position

The combined company will create a leading DJ Basin pure play company with an exclusively rural acreage position and significant weighting to oil and natural gas liquids. The combined company will possess two core and highly contiguous acreage positions with approximately 151,100 net acres located in the Hereford Field and Northeast ("NE") Wattenberg areas and a deep inventory of approximately 2,865 gross undeveloped locations (~95% XRL) that are prospective for multiple Niobrara benches and the Codell formation and confirmed with extensive seismic and petrophysical analysis and modelling. Assuming current strip pricing, these locations are expected to provide an attractive weighted average rate of return of approximately 65%. Average daily production for the combined assets was approximately 24 MBoe/d (81% liquids, 64% oil) in the third quarter of 2017 with combined proved reserves of 168 MMBoe (69% oil) as of December 31, 2016. 

The combined company will greatly benefit from increased economies of scale and a low operating cost structure. The largely undeveloped nature of Fifth Creek's acreage position allows for the application of modern completion designs to enhance well returns. The Hereford Field has established well control as a result of 62 SRL delineation wells, including the historic "Jake well" that is credited with starting the horizontal Niobrara drilling boom in the DJ Basin. During 2017, seven wells were completed in the Hereford Field with modern completion designs and had an average initial thirty-day production rate of 1,052 Boe/d (84% oil), which are among the highest rate oil wells ever drilled in the DJ Basin. It is also anticipated that three drilling rigs will operate on the combined acreage position in 2018. The combined acreage has existing infrastructure in place to support planned development and benefits from having no firm oil marketing or pipeline commitments, resulting in current oil price differentials to West Texas Intermediate pricing of less than $2.50 per barrel. Approximately 150 gross wells will spud in 2018 with anticipated 2018 production of 11-12 MMBoe (~65% oil) and $500-$600 million of associated capital expenditures. This preliminary plan assumes full-year 2018 outlooks for each company and formal 2018 guidance is anticipated to be issued following the closing of the transaction.

The combined company will be well capitalized with a solid financial position and balance sheet flexibility with no debt maturities until 2022. Balance sheet strength is highlighted by a significant cash position, an undrawn credit facility, improving leverage metrics, and strong liquidity to fund the planned high-return development program.