Lucas Energy Inc. is acquiring a Texas Permian Basin leasehold position from an unnamed Houston-based oil and natural gas holding company. The deal marks the company’s entry into the hot West Texas/New Mexico play.

Under a lease acquisition and purchase agreement, Houston-based Lucas will buy the initial lease composed of 16,322 gross (3,630 net) mineral acres. The parties have agreed to form an area of mutual interest (AMI) on the Central Basin Platform of the Permian Basin covering 20,000 net mineral acres.

This deal represents the opening of a new core area where the company will operate the properties and own a 90% working interest and the partner will hold a 10% working interest in the initial leases and all subsequently acquired leases, Lucas said Tuesday.

The initial cash consideration paid by Lucas is $1.43 million in exchange for access to the partner’s regional, technical database and the company’s 90% interest in the initial leases. More than $1.1 million of this amount is being deferred until on or before Jan. 31, pending title approval.

As additional leases are acquired under the AMI, Lucas said it will pay the partner its lease acquisition costs and grant an incentive overriding royalty interest. Upon meeting certain acreage acquisition goals based on size and location of the properties, Lucas will also issue to the partner 200,000 unregistered shares of its common stock and pay the partner an acreage fee based on the total leasehold and brokerage costs, it said.

Lucas will be initiating a development program in the emerging San Andres play, which is found at relatively shallow depths and has similar attributes to the company’s de-watering Hunton play in Oklahoma, it said. “Both the Hunton and San Andres are highly water-saturated carbonates where the production profile appears to be optimized by a de-watering process which slowly de-pressurizes the formation, allowing fuller depletion of the reservoir,” Lucas said.

“With this initial leasehold position, we have established our entry into the prolific Permian Basin,” said CEO Anthony Schnur. “We believe the similarities of the San Andres to our existing Hunton properties play well into our technical strengths in drilling carbonates, as well as water and other infrastructure management capabilities.”

So far, the horizontal development of the San Andres has been largely dominated by private exploration and production companies, many of which are backed by leading private equity firms, Lucas said.

Since the company’s acquisition of its Segundo assets, Lucas has sought to expand its de-watering expertise to another productive formation, the company said. For more than nine months Lucas management has evaluated seismic, geologic and other technical data provided by the Railroad Commission Texas and other industry sources.

Lucas and its partner intend to secure additional leases over the term of their agreement, Lucas said. Drilling is expected to occur in the second half of 2017.

“We are confident in our ability to expand our leasehold position beyond this initial commitment and look forward to increasing our participation in the development of the Permian Basin,” Schnur said.