Williston pure-play operator Oasis Petroleum Inc. said it will acquire 55,000 net acres in the basin, including 226 gross operated drilling locations, from SM Energy Co. for $785 million. It plans to offer 40 million shares of common stock to help finance the deal.
Meanwhile, the Houston-based company said it has bumped up its full-year production guidance for 2016, and that banks have reaffirmed its borrowing base at $1.15 billion.
In a statement Tuesday, Oasis said it estimates that the acquired acreage will hold an estimated 50.2 million boe of proved reserves at the end of the year, 63% of which are considered proved developed producing and 77% of which are oil. The acreage is expected to produce 12,400 boe/d in 4Q2016. Oasis said it expects to operate about 75% of the properties based on proved reserves.
The acquisition is expected to close on Dec. 1 and is subject to customary closing conditions. Oasis held 484,745 net acres at the end of 2015, while production totaled 48,509 boe/d in 3Q2016. After closing, Oasis's pro forma combined net acreage would total 539,745, and it would have 60,909 boe/d of production, with the latter figure based upon a projected 12,400 boe/d of 4Q2016 production from the acquired assets.
"This acquisition is a great opportunity to add acreage and inventory that is a natural fit with our existing core and extended core positions and will increase our gross operated drilling locations in our core acreage by approximately 25%," said CEO Thomas Nusz. "With our continued capital efficiency and best-in-class operations in the Williston Basin, we are well positioned to take full advantage of this complementary asset that we believe will generate substantial shareholder accretion based on our currently anticipated acquisition financing."
In a separate statement Tuesday announcing the offering of 40 million shares, Oasis said it will give underwriters a 30-day option to purchase up to 6 million additional shares of common stock. It added that the offering is not conditional on the deal with SM Energy closing. If the deal doesn't happen, Oasis will use the proceeds for general corporate purposes, which may include funding some of its capital budget for 2017. J.P. Morgan Securities LLC and Goldman, Sachs & Co. are acting as joint book-running managers for the offering.
SM Energy announced Tuesday that it was expanding its footprint in the Midland Basin in a $1.6 billion deal (see related story).
Oasis said 81.3% of its 3Q2016 production was oil. The company increased its full-year production guidance by 1.4%, from 49,300 to 50,000 boe/d. Oasis added that it had completed and placed into production 17 gross (7.1 net) operated wells during 3Q2016, and it had 80 gross operated wells awaiting completion at the end of the quarter.
Nusz said Oasis now has production data results from numerous wells targeting the Bakken Shale and Three Forks formation across multiple drilling spacing units in the Wild Basin, including the White unit wells and additional wells the company completed in 2016. He said production from those wells exceeded the current Wild Basin type curve -- by about 1.2 million boe in the Bakken and 1.0 million in the Three Forks -- and that the company was raising its type curves to about 1.55 million in the Bakken and 1.2 million in the Three Forks.
"This type curve is based on our 4 million pound-sand slickwater completion technique," Nusz said. "The team continues to test the latest completion technologies. Our confidence is growing that increasing proppant loading and stage counts will continue to improve well performance, as we are seeing production uplift in our own tests as well as tests done by other operators in similar operating areas."
Oasis said it had $13.8 million in cash and cash equivalents on hand at the end of the third quarter. It also had $195 million in borrowings and $12.3 million in outstanding letters of credit issued under its revolving credit facility, resulting in an unused borrowing base capacity of $942.7 million.
Last Friday, in connection with a scheduled redetermination of its borrowing base, Oasis entered into an amendment to its second amended and restated credit agreement with its bank syndicate. The company's borrowing base and elected commitments were reaffirmed at $1.15 billion. The next redetermination is scheduled for April 1, 2017.