Oasis Petroleum Inc. (NYSE: OAS) has acquired approximately 55,000 net acres in the heart of the Williston Basin from SM Energy for approximately $785 million. Oasis subsequently announced an equity offering estimated at $580 million to fund the deal.
Internal estimates show approximately 50.2 MMBoe of proved reserves, 63% of which are considered proved developed producing and 77% of which are oil. The properties to be acquired are expected to produce 12,400 Boe/d in the three months ending December 31, 2016. Oasis expects to operate approximately 75% of the properties based on proved reserves.
Phillips Johnston of Capital One Securities, said the deal is set to reduce Oasis Petroleum’s financial leverage, “thus mitigating a key bear concern,” and boosts the company’s exposure to the core of the Bakken.
In a note Thursday, Johnston said the acquisition, which increases the company’s core location count by 19% “and equates to an inventory life of ~13 years at the current pace vs. 10 years prior (management estimates core locations have 1,050 Mboe EURs/~$27/bbl oil price breakeven),” and brings the company’s pro-forma total acreage footprint in the Williston Basin to approximately 540K net acres.”
Oasis estimates 226 gross operated drilling locations on the new properties, including 130 in the core of the basin. Of these, “management believes more than half would be similar to the company’s existing Wild Basin locations, where management just increased EUR type curves to ~1,550 Mboe for Bakken and ~1,200 Mboe for Three Forks (vs prior 1,200/1,000 Mboe),” Johnston continued.
As for deal metrics, he said, the acquisition price equates to roughly 19% of OAS’s enterprise value. “After backing out ~$675MM of value from the $785MM purchase price for existing production (at $60K per flowing bbl/d for oil and $4K per flowing Mcf/d for gas), the remaining ~$108MM of value implies ~$2K/acre for the ~55K net acres.”
The effective date for the acquisition is October 1, 2016 and the transaction is expected to close on December 1, 2016. The transaction is subject to customary closing conditions. The Purchase Agreement contains various purchase price adjustments to be calculated as of the closing date.