SM Energy Co. has agreed to acquire 24,783 net acres in Howard County in West Texas, expanding its Midland Basin footprint to 46,750 net acres. The company also said it is issuing shares and notes to fund the transaction.

The acreage being acquired is largely contiguous and includes 4,900 boe/d of net production (with two new wells coming online August this month) and 6 million boe of proved developed producing reserves, according to Denver-based SM Energy. The purchase price is $980 million and the seller is Denver- and Houston-based Rock Oil Holdings LLC, a Riverstone Energy portfolio company.

SM Energy CEO Jay Ottoson said, "...[W]e have been looking for some time to expand our asset base, in the right location under the right terms. This is a negotiated transaction for assets in Howard County, a region of the Midland Basin that is emerging as a top tier area for well performance.

"We expect that the implementation of pad drilling, reservoir modeling, zipper fracks, and leading-edge completion technologies will add value from the start. We anticipate running one rig in the area in the fourth quarter of 2016 and two rigs throughout 2017. As a result, we are increasing our estimate of total capital spend for 2016 by approximately $15-20 million."

The deal is expected to close on Oct. 4, with an effective date of Sept. 1, and will be subject to customary purchase price adjustments.

During a second quarter earnings conference call last week, SM Energy executives touted the company's recent performance in the Midland Basin, which is a sub-basin of the Permian. "We continue to see opportunity to drive better well performance by looking at tests we started implementing over two years ago," Herb Vogel, executive vice president of operations, said last Wednesday (see Shale DailyAug. 4).

Also on Monday, SM Energy undertook a public offering of 15 million common shares, with proceeds intended to pay for a portion of the Midland Basin acquisition. The company also said it plans to offer $100 million of senior unsecured convertible notes due in 2021, with a portion of these proceeds also targeted at the Rock Oil transaction.