Summer deals continue going strong in the US Lower 48, with the Permian Basin staying firmly in the spotlight. Our US upstream analysts examine the numbers in a US$980 million acreage acquisition by SM Energy in the Midland Basin, offering our take on the value of the deal and how it illustrates the strategies of both private equity and public companies like SM Energy in the Spraberry and Wolfcamp.
SM Energy has agreed to pay US$980 million for private equity backed Rock Oil's 24,783 net acres of Permian assets in the Midland Basin. Located in Howard County within the Wolfcamp Deep Basin sub-play, the assets currently yield 4,900 barrels of oil equivalent per day (boe/d) of production.
We estimate proven undeveloped value at US$734 million and the proved develop production value at US$196 million, for a total deal value of US$930 million. This estimate assumes acreage is prospective for Spraberry (vertical), Lower Spraberry (horizontal) and horizontal Wolfcamp development in the A and B benches west of Big Spring. Rock Oil (operating as JPM EOC and backed by Riverstone) previously purchased this position from LINN Energy in Q4 2015, expanding horizontal development in the Spraberry and Wolfcamp, where LINN previously drilled only vertical wells.
SM Energy's capex is divided nearly evenly among the Eagle Ford, Bakken and Wolfcamp, but its previous Wolfcamp assets were much smaller at 14,000 net acres (yielding just 64 remaining locations). At 160-acre spacing, drilling 30 wells per year, this deal will add 155 Wolfcamp locations and extend drilling to 2023—well beyond previous estimates that the company's Wolfcamp inventory would be exhausted by 2018.
You can purchase our full US Upstream Week In Brief on demand to read this week's top stories in the North America Upstream sector, including the latest M&A activity for SM Energy, Chesapeake and Eagle Claw; a transaction that could increase risk for proposed Bakken Pipeline projects; a JV between Plains All American Pipeline and Phillips 66 to expand pipeline infrastructure in the STACK; and our latest supply update and rig-count dashboard.
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