Ring Energy has agreed to acquire the assets owned by Stronghold Energy II Operating and Stronghold Energy II Royalties, collectively called Stronghold, in a cash and stock deal valued at $465m.

Stronghold owns a high-quality, conventional, Proved Developed Producing (PDP) asset base, primarily located in Crane County, Texas.

The assets are focused on the development of around 37,000 net acres in the Permian Basin’s Central Basin Platform (CBP).

Stronghold is majority-owned by US-based private equity investor Warburg Pincus.

Under the terms of the agreement, the US-based oil and gas company is expected to make an upfront payment of $200m in cash upon closing.

The consideration includes a deferred cash payment of $15m, paid after six months from the closing, and an existing Stronghold hedge liability of $20m.

In addition, Ring Energy is expected to issue its shares to the owners of Stronghold, worth $230m, based on a 20-day VWAP of $3.60 per common share as of 30 June 2022.

Ring Energy chief executive officer and board chairman Paul D McKinney said: “The Transaction truly complements our existing footprint of conventional-focused Central Basin Platform and Northwest Shelf asset positions in the Permian Basin.

“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.”

Ring Energy intends to finance the cash portion of the consideration from borrowings under a fully committed revolving credit facility.

The credit facility will be underwritten by Truist Securities, Citizens Bank, KeyBanc Capital Markets and Mizuho Securities.

In addition, the borrowing base of the company’s $1bn Credit Facility will be increased from $350m to $600m upon closing of the transaction.

The transaction has been unanimously approved by Ring’s Board of Directors.

It is expected to be completed in the third quarter of 2022, subject to customary closing requirements, including a satisfactory review of the title and environmental conditions.

Upon closing of the acquisition, Stronghold’s owners will own around 34% of Ring and become its largest stockholder.

Following the closing of the Transaction, Ring’s Board of Directors will be expanded from seven to nine directors to include two members proposed by Warburg Pincus.

The transaction would increase its free cash flow generation and reduce the operating costs, to enhance its financial position, said Ring Energy.

Raymond James and Truist Securities served as financial advisors to Ring, while Piper Sandler & Co. as financial advisor to Stronghold, on the transaction.

Mizuho Securities provided a fairness opinion to Ring’s Board, and Jones & Keller offered legal counsel to Ring, while Kirkland & Ellis provided legal counsel to Stronghold.