Tulsa-based Laredo Petroleum Inc. has clinched a deal to build out its West Texas leasehold in an estimated $230 million cash-and-stock deal with Pioneer Natural Resources Co.

The transaction is for around 20,000 net acres in the Permian Basin’s Midland formation, giving Laredo around 22,200 net acres total in western Glasscock County. The acreage is now producing about 4,400 boe/d. 

“Upon closing this transaction, we will have acquired more than 55,000 net acres of highly productive, oil-weighted inventory in Howard and western Glasscock counties in just two years, fundamentally transforming Laredo,” said CEO Jason Pigott. “Seven years of inventory across these core areas will enhance our ability to deliver sustainable, long-term free cash flow generation and to rapidly deleverage.”

[Plan Ahead: NGI’s Forward Look forward curves deliver affordable, robust natural gas futures pricing with curves going out 10 years at 70 locations. Learn more. ]

The bolt-on acreage is 80% operated and 98% held by production, Laredo said. There are an estimated 135 gross operated locations to drill, with average lateral lengths of 9,700. Laredo said it plans to maintain “current expectations for 2022 activity levels” using two drilling rigs and one completions crew.

To clinch the deal, Laredo agreed to pay Pioneer $160 million and trade 959,691 shares of common stock.
The Pioneer transaction is Laredo’s second since the start of the year. In July the Permian pure-play acquired Sabalo Energy LLC’s assets in Howard County, TX, for roughly $715 million. Last year it added to its Howard County position.

With more than 900,000 net acres under its purview, Irving, TX-based Pioneer is considered the Permian’s largest exploration and production company. A long-time Permian producer, Pioneer earlier this year completed the takeover of Parsley Energy Inc. and DoublePoint Energy

The dealmaking prompted a review of the entire leasehold, however. During the second quarter conference call in August, President Richard Dealy said Pioneer would “evaluate opportunities to monetize portions of our longer-dated inventory” in the massive play.

Assuming $30,000/flowing boe, Laredo is paying an estimated $5,000/acre for the Pioneer stakes, according to Wells Fargo. 

“Critically, the acquisition offers more scale in the company’s western Glasscock County area,” the Wells Fargo analysts said. “We believe this offers up increased potential for operational efficiencies/synergies in the future as the area can now be more fully developed.” 

The deal, said the analysts, also gives Laredo “more leverage as a consolidator in the area. With some opportunity for blocking up the acquired chunks, Laredo can now more effectively position themselves as a consolidator in the region.”

Siebert Williams Shank & Co. LLC analysts said it was “a solid deal” for Laredo. It also helps to narrow “the inventory gap between its small-cap peers,” the analysts said.