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RSP Permian Readies Another Bolt-on in Midland Sweet Spot

Permian Basin operator RSP Permian Inc. has a letter of intent to bolt on another passel of producing natural gas and oil wells and land adjacent to its growing land base in the prolific Midland subbasin, the independent said Wednesday.

The proposed $137 million cash transaction was privately negotiated between RSP and Wolfberry Partners Resources LLC, an entity owned in part by affiliates. It covers 4,100 net surface acres and 15,00 net horizontal acres. Net production averaged 1,900 boe/d in August. Included are 25 producing wells, four horizontal wells and 21 vertical wells.

"The potential acquisition shows our commitment to grow our existing, high-return horizontal inventory," said CEO Steve Gray. "If the potential acquisition closes, we will have meaningfully enhanced our acreage footprint and increased our horizontal development inventory in the core of the Midland Basin by over 25% in the past few months."

The assets, he said, "are in close proximity to our existing operations...in the heart of the Midland Basin where we have drilled some of our best wells. Based on our analysis of the geological and other technical data related to these properties, the results of the initial four horizontal wells (targeting four different horizontal zones) and vertical wells drilled, and nearby offset horizontal results by other operators, we expect these assets will generate returns that rival any asset that we currently own..."

The deal includes 86 net horizontal drilling locations in five zones, including 21 in Middle Spraberry, 34 in Lower Spraberry, 10 each in Wolfcamp A and B, and 11 in Wolfcamp D. Average lateral length of the inventory is 8,100 feet.

The "largely contiguous acreage" would allow for drilling longer laterals and is "conducive for efficient infrastructure development," management said. RSP would own 100% of the assets and plans to begin drilling once the transaction is completed.

If a definitive agreement is reached, the transaction should close before the end of the year. RSP would fund $60 million at closing and the remainder of the purchase price would be payable within nine months. At RSP's discretion, prepaid would be allowed without penalty. Two months ago, RSP completed a bolt-on acquisition in the Midland that added 5,704 net surface acres, or almost 27,300 net effective horizontal acres, to its portfolio (see Shale DailyAug. 14).

The Dallas-based independent said Wednesday its 3Q2015 net output is expected to average 23,500-24,000 boe/d, 75% weighted to oil, which would be up to 114% higher year/year and as much as 21% higher sequentially.

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