Midstates Petroleum Co. agreed to pay Eagle Energy Production LLC $650 million in cash and stock for all of Eagle's producing properties, and both developed and undeveloped acreage, primarily in the Mississippian Lime oil play in Oklahoma and Kansas, the Houston-based producer said Monday.
The transaction would bring Midstates 37 million boe of proved reserves, which are 35% oil and 23% natural gas liquids (NGL); 114 gross producing wells (85% operated, with an average 67% working interest and 53% net revenue interest); and net current daily production of about 7,000 boe/d. The deal would also add 103,000 net acres, including 84,000 in the Mississippian Lime (78,000 in Oklahoma and 6,000 in Kansas), and 19,000 in the Hunton play in Oklahoma, Midstates said.
"The transaction we are announcing...is both a strategic and transformative acquisition for Midstates," said CEO John Crum. "The properties we are acquiring in the Mississippian Lime play are particularly appealing because they are in a market-recognized, emerging horizontal oil play with good predictability and solid economics."
The Mississippian Lime properties, which are in a conventional carbonate reservoir with wells drilled to about 6,000-foot vertical depths, "are an excellent geological and operational fit," Midstates said. "None of the properties are subject to preferential rights, and the leases are held by production or have lease terms that will allow Midstates to protect the acreage position at a modest drilling pace."
The transaction would expand Midstates' drilling inventory by more than 600 gross drilling locations. The company is currently utilizing three rigs in its drilling program and expects to increase that number to four by the end of the year.
"We remain enthusiastic about our upper Gulf Coast tertiary trend acreage position [in central Louisiana] and will continue to adjust our future drilling plans to best utilize knowledge gained from wells drilled to date," Crum said. "We believe the addition of the new Mississippian Lime properties will balance our overall drilling risk profile while maintaining excellent exposure to the significant upside provided by both of these emerging oil-rich plays."
Including the new assets, Midstates would continue to have an oil-weighted proved reserve base of about 63.2 million boe, of which 45% would be oil, 20% NGLs and the 35% natural gas, with 41% of the total reserves proved developed.
Midstates said it has agreed to acquire the properties for $325 million in cash and 325,000 shares of preferred stock with an initial liquidation preference value of $1,000/share. The transaction would be effective June 1, 2012, with closing expected by Oct. 1. Midstates has entered into a transition services agreement with Eagle management and staff for a 12-month period once the transaction is completed.
Midstates on Monday reported 2Q2012 adjusted earnings before interest, taxes, depreciation and amortization of $32.8 million, compared with $35.7 million in 2Q2011. Average daily production during 2Q2012 was 7,904 boe/d. Midstates said its oil production rose 10% compared with 1Q2012, but natural gas and NGL volumes decreased by 21%.
Eagle is a private exploration and production company sponsored by private equity power broker Riverstone Holdings LLC. Separately on Monday, Riverstone announced that it has invested in Three Rivers Operating Co. LLC, which in turn has signed an agreement to buy several assets in the Permian Basin (see related story).