The majority of RKI’s leasehold is located in Loving County, Texas, and Eddy County, New Mexico, where the company has four rigs deployed. RKI’s assets in the Permian Basin include approximately 22,000 boe/d of existing production – more than half of which is oil; about 92,000 net acres in the core of the Permian’s Delaware Basin, 98% percent of which is held by production; more than 3,600 gross risked drilling locations across stacked pay intervals; and more than 375 miles of scalable gas gathering and water infrastructure.
The acquisition metrics include $1.1 billion for the existing production at $50,000 per flowing barrel, $500 million for the established midstream infrastructure, which equates to an average of $12,500 per acre – or $1.15 billion – for the undeveloped locations.
All of RKI’s Permian properties are located in the Delaware Basin. RKI also has operations in Wyoming’s Powder River Basin. Those assets are not included in WPX’s purchase. RKI will divest or transfer out its Powder River Basin assets before completing the merger with WPX.
WPX plans to retain RKI staff upon closing, as well as its offices in Oklahoma City, Oklahoma, and Carlsbad, New Mexico. WPX’s corporate headquarters will remain in Tulsa, Oklahoma.
The board of directors of WPX and the board of managers of RKI have unanimously approved the merger agreement. In addition, the merger agreement has been adopted and approved by the holders of approximately 85% of the issued and outstanding RKI limited liability company interests following the entry into the merger agreement by RKI.
The parties expect to complete the transaction by the end of third-quarter 2015. Once the transaction is completed, RKI unit holders will receive 40 million shares of WPX stock, valued at approximately $470 million based on the terms of the agreement.
WPX has obtained committed financing from Barclays in connection with the transaction. WPX also will amend its existing unsecured credit facility.
Barclays and Tudor, Pickering, Holt & Co. acted as financial advisors to WPX on the RKI transaction. Weil, Gotshal and Manges LLP served as legal advisor to WPX.
On the pending acquisition, analysts from Global Hunter Securities commented, “WPX is acquiring the scale and additional oil inventory it has been looking for and now has increased visibility on higher oil production (going from 22% to 36% of total production by 2017), margins (projecting 45% growth through 2017), and cash flow (25% growth through 2017). To help finance the transaction, WPX is raising $300 million in equity, $1.2 billion in notes, and $300 million in convertible notes on top of $1.3 billion in liquidity at Q1. The Delaware Basin continues to be one of the most desirable basins in the US, and, at $12,500/acre, we believe WPX has made a nice acquisition at an attractive price.”