US based firm SM Energy has agreed to acquire 35,700 net acres in Howard and Martin Counties in West Texas from QStar, a portfolio company of EnCap Investments and a related entity, for $1.6bn.
The acreage considered for acquisition is expected to increase the company’s Midland Basin footprint to approximately 82,450 net acres.
In an effort to boost presence in the Permian basin, the company has earlier acquired Howard County acreage that includes approximately 2,400 barrel of oil equivalent (boe) per day net production for about $980m.
SM Energy president and CEO Jay Ottoson said: “Our strategy is straight-forward, we intend to deliver growth in cash flow per debt-adjusted share by being a premier operator of top tier assets.
“We are particularly excited about the performance and future potential of Howard County, leading us to further core up our portfolio and focus on this fast emerging, top tier area.”
Meanwhile, SM Energy also signed an agreement to divest approximately 55,000 net acres in the Williston Basin located outside of Divide County to Oasis Petroleum for $785m.
Proceeds from the sale, which is subject to customary purchase price adjustments, will be used by the company to fund the majority of the acquisition.
Going forward, the company plans to add a fourth rig in Permian's Midland basin during the fourth quarter of 2016 and increase the rig count to six in early 2017.
Ottoson added: “We continue to work to concentrate capital on the highest return programs and generate higher company-wide margins, which drive cash flow growth and value creation for our shareholders.”
The two deals are expected to be closed by the end of the year and are subject to customary purchase price adjustments and satisfaction of customary closing conditions.
QStar CEO Gerald Carman said: “SM Energy will have one of the largest, highest-quality leasehold positions in the Midland Basin, pro forma the QStar transaction, and we believe SM’s operations team is ideally suited to optimize the long-term value of QStar’s excellent asset base.”
Image: SM Energy intends to boost Midland Basin footprint to approximately 82,450 net acres. Photo: courtesy of Suwatpo/ FreeDigitalPhotos.net.