EP Energy Corp. is tightening up its portfolio with a Texas-Louisiana two-stepper: buying in the Midland Basin and selling in the Ark-La-Tex Cotton Valley and South Louisiana Wilcox areas, the company said Thursday.

The company closed on the $153 million cash purchase of producing properties and undeveloped acreage directly offsetting its existing Wolfcamp operating areas in Reagan and Crockett counties, TX, in the Southern Midland Basin. The seller was not disclosed. EP Energy has also agreed to sell noncore assets in the Ark-La-Tex Cotton Valley and South Louisiana Wilcox areas to Indigo Minerals LLC for cash proceeds of $150 million.

“These transactions are consistent with our strategy to build large positions in low-risk, repeatable programs where we can enhance returns by improving operational efficiencies while divesting assets which do not fit our long-term objectives,” said CEO Brent Smolik. “The bolt-on transaction reaffirms our strong belief in the quality of our southern Midland Basin acreage based on our recent well performance and expectations for continued improvement across our large inventory of future drilling locations.”

The Midland Basin properties being acquired are 100% operated (100% working interest, 75% net revenue interest) with net production of about 1,000 boe/d, 75% liquids. EP Energy is adding 475 gross identified Wolfcamp horizontal drilling locations to its inventory based on current spacing of 770 feet between wells.

The addition of about 37,000 net acres represents an approximate 25% expansion of the company’s Wolfcamp position. The acreage is adjacent to existing operations and comes from a single landowner, all of it on University Lands. The cost is estimated by EP Energy at about $2,700 per undeveloped acre. With the deal, the company’s total estimated net resource potential grows by about 143 million boe.

“We think the acquisition demonstrates EP’s increased confidence in the play, driven by continued improvement in well results, but we’d note historical public production data remains mixed for the southern Midland Basin with meaningful increases to GORs [gas/oil ratios] over time,” said BMO Capital Markets’ Phillip Jungwirth in a note Thursday. He added that if “strong Wolfcamp production growth” by EP Energy continues, the firm would revisit its “mixed view” of the southern Midland.

While EP Energy counts 475 Wolfcamp horizontal drilling locations in the acquired acreage, Jungwirth wrote that BMO sees 837 unrisked locations based on 7,500-foot laterals and 770-foot inter-lateral spacing in the Wolfcamp A, B and C. “EP’s 143 million boe resource potential adds appear consistent with its 400,000 boe EUR [estimated ultimate recoveries],” he said.

EP Energy said the quality of the acquired acreage is consistent with its existing contiguous position, which is prospective for horizontal development in the Wolfcamp A, B and C horizons. Other formations including the Cline and Spraberry are present in the acreage and may be prospective for hydrocarbons, the company said. In the Wolfcamp, the pro forma acreage position is about 175,000 net acres across Crockett, Reagan, Upton and Irion counties. The company now has nearly 3,400 future drilling locations in its Wolfcamp inventory.

Smolik did allow that down in the southeast corner of the acquired acreage there is a little subsurface faulting. “Other than that, we think it’s very similar, subsurface, here,” he said during a conference call.

It will take “minimal capital” to integrate the acquired properties, said EP Energy, which is currently operating four horizontal rigs in its Wolfcamp program and expects to maintain this level for the rest of this year.

Smolik told analysts the two deals were planned separately and that their timing is coincidental, even though the outcomes fit together nicely. He was asked why a seller would let the acreage go for $2,700/acre. Smolik said the sale to EP Energy was not driven by lease expiry but rather was a “strategic exit” by the unnamed seller. With EP Energy’s cost structure and economics, “…we think that this acreage could be significantly higher value than what we’re paying for it,” Smolik said. “We think it’s opportunistic that we were in the area as they were strategically exiting.”

The noncore legacy assets being sold to Houston-based Indigo Minerals consist of 78,000 net acres (excluding the company’s Haynesville Shale rights) with net production of 21 MMcfe/d, about 85%natural gas, and total estimated proved reserves of 84 Bcfe at the end of December. The deal is expected to close during the second quarter with proceeds to be used to offset the cost of the Midland Basin acquisition.