RSP Permian signs LOI to acquire Midland Basin properties

RSP Permian Inc. (NYSE: RSPP) has signed a letter of intent (LOI) to acquire undeveloped acreage and oil and natural gas producing properties located in the core of the Midland Basin for an approximate aggregate purchase price of $137 million in cash, subject to customary purchase price adjustments. 

By Seaport Global Securities estimates, the deal equates to $10.2K/acre assuming a $50K/flowing boe multiple, and $1.6 million per undeveloped location, said analysts in a note Wednesday. The price is favorable, the analysts continued, with some recent deals fetching upward of $30K/acre.

The privately negotiated transaction between RSP and Wolfberry Partners Resources LLC, an entity owned in part by affiliates of the company, includes nearly 4,100 net surface acres and 15,000 net effective horizontal acres with 86 net horizontal drilling locations in five zones, 21 in the Middle Spraberry, 34 in the Lower Spraberry, 10 in the Wolfcamp A, 10 in the Wolfcamp B, and 11 in the Wolfcamp D. Upon closing, the assets would be 100% operated by RSP. Net production averaged approximately 1.9 MBoe/d in August.

The analyst noted that RSP management intends to fund the acquisition with proceeds from a newly announced equity raise (6MM shares + a 0.9MM share overallotment), “which should garner ~$183.5MM gross based on yesterday’s $26.59 closing price.”

If a definitive purchase and sale agreement is ultimately reached, the transaction is expected to close in the first half of the fourth quarter. RSP would have to fund $60.0 million at closing, and the remainder of the approximate $137 million purchase price would be payable within nine months thereafter and would bear interest at the greater of 2.1% per annum or LIBOR plus 1.5%. At RSP's sole discretion, such payable may be prepaid without any penalty. 

The acquisition is subject to the completion of customary due diligence, negotiation of a definitive purchase and sale agreement, approval of the company's board, the receipt of a fairness opinion from an investment banking advisory firm, closing conditions, and purchase price adjustments.. 

Seaport Global Securities' takeaway included: “Positive; RSPP picks up ~4.1K net acres in the heart of the Midland Basin for a favorable $10.2K/acre price (vs. some recent deals fetching upwards of $30K/acre); Q3 production (12%/7% higher than our estimates/consensus) should be considered strong, in our opinion, and we’re encouraged by commentary pointing to higher EURs in the Middle/Lower Spraberry/Wolfcamp A across RSPP’s acreage.”

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