Ring Energy Inc. has entered a deal to acquire the Permian Basin assets of privately held Stronghold Energy II Operating LLC and Stronghold Energy II Royalties LP in a transaction valued at $465 million.
Comprising about 37,000 net acres, the Stronghold assets are mainly located in Crane County, TX, and target the Permian’s Central Basin Platform (CBP), Ring management said Tuesday. Stronghold is majority owned by private equity firm Warburg Pincus LLC.
The transaction, slated to close in the third quarter, is expected to nearly double Ring’s fourth-quarter 2022 sales volumes versus the midpoint of 2Q2022 guidance to about 18,000-19,000 boe/d (70% oil, 81% liquids).
Ring CEO Paul McKinney said his team expects the Stronghold assets to “further diversify our commodity mix and provide increased optionality on multiple fronts upon closing. The transaction truly complements our existing footprint of conventional-focused Central Basin Platform and Northwest Shelf asset positions in the Permian Basin.”
He added, “We intend to leverage our extensive expertise in applying the newest unconventional and conventional technologies to optimally develop Stronghold’s deep inventory of investment opportunities. We believe the transaction will provide for a material increase in our size and scale, and more importantly, will be immediately accretive across all of the key operational and financial metrics for Ring’s existing stockholders.”
The price tag consists of $200 million in cash at closing, a $15 million deferred cash payment due six months after closing, $20 million of existing Stronghold hedge liability and $230 million worth of common shares in Ring.
The transaction follows a similar deal announced Friday that would see Earthstone Energy Inc. acquire the Permian assets of privately held Titus Oil & Gas LLC for $627 million in cash and stock consideration.
The Stronghold acreage comprises about 31,000 leasehold and 6,000 mineral acres that are about 99% operated with a 99% working interest, and 99% held by production.
Net production from the assets currently stands at about 9,100 boe/d (54% oil, 75% liquids), Ring management said.
“Once we complete the transaction, we will have materially increased our inventory of high rate-of-return drilling, recompletion and workover projects, and fully expect to increase our activity across our expanded footprint,” said McKinney. “The combination of lower operating costs and a substantially expanded inventory of high-margin, capital efficient development opportunities is expected to increase free cash flow and our ability to rapidly pay down debt.
“This will allow us to expand even further through potential acquisitions or enhance stockholder returns through other potential return of capital opportunities.”
The transaction is set to increase Ring’s proved reserves by over 80%, including a 90% increase in proved developed reserves, management said. The firm’s operating footprint, meanwhile, would grow by 56% to more than 100,000 net acres. Ring is forecasting 4Q capital expenditures of $50-54 million.
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