RSP snags 15 MBOEPD of Permian Basin production
RSP Permian (ticker: RSPP) today announced it has entered into definitive agreements to acquire Silver Hill Energy Partners, LLC (“SHEP I”) and Silver Hill E&P II, LLC (“SHEP II,” and together with SHEP I, “Silver Hill”) for $1.25 billion of cash and 31.0 million shares of RSP common stock in aggregate, implying a total purchase price of approximately $2.4 billion.
Silver Hill is comprised of two privately held entities controlled by affiliates of Kayne Anderson Capital Advisors and Ridgemont Equity Partners that collectively own approximately 68,000 gross /41,000 net acres in northeast Loving and northwest Winkler Counties, Texas with roughly 15 MBOEPD of current net production from 58 producing wells (49 horizontals) and about 3,200 gross /1,950 net total undeveloped locations.
While both transactions will have an effective date of November 1, 2016, the two transactions will close separately. SHEP I is expected to close in the fourth quarter of 2016, with Silver Hill receiving approximately $604 million of cash and 15.0 million RSP shares. SHEP II is expected to close in the first quarter of 2017, with Silver Hill receiving approximately $646 million of cash and 16.0 million RSP shares, according to the company’s press release.
Upon closing of SHEP II, Kayne Anderson, Ridgemont and other Silver Hill shareholders are expected to collectively own approximately 20% of RSP’s outstanding shares pro forma for the issuance to Silver Hill and the concurrent equity offering that will fund a portion of the consideration for the acquisition. In addition, RSP expects to add Kyle D. Miller, CEO of Silver Hill, to RSP’s Board of Directors upon closing SHEP II.
Transaction highlights
- The acquisition creates substantial scale with combined current production of approximately 50 MBOEPD, over 100,000 net surface acres, over 500,000 net effective horizontal acres and over 3,600 net drilling locations with substantial additional upside from tighter spacing assumptions
- Unique acquisition of a highly contiguous acreage position in the core of the Delaware Basin that has approximately 68,000 gross / 41,000 net surface acres located in Loving and Winkler counties
- Acreage located in the thickest, deepest part of the Delaware Basin, which is significantly over-pressured
- Blocked up acreage configuration conducive for longer laterals and efficient development
- Located in an oil-weighted area of the Delaware Basin
- ~250,000 net effective horizontal acres across 7 horizontal pay zones
- Significant operational control with over 80% of acreage operated
- Average working interest in operated properties of approximately 83%
- One operated rig holds acreage position
- Offset operators include EOG, Anadarko, Shell, Matador and Devon
- Meaningful and growing production base with current net production of approximately 15.0 MBOEPD (69% oil, 86% liquids) and two operated horizontal rigs currently drilling on acreage position
- Deep inventory of attractive horizontal drilling locations across multiple horizontal stacked pay zones, including the Wolfcamp B, upper and lower Wolfcamp A, 3rd Bone Spring, 2nd Bone Spring, Avalon, and Brushy Canyon
- EURs of ~1.0 MMBOE common across acreage position based on management’s estimates
- ~3,200 gross / ~1,950 net locations with average lateral length of approximately 6,300′
- Acreage trades on-going for longer lateral development
Financing
In order to pay the cash portion of the acquisition, RSP also announced that it will be offering 22,000,000 shares of common stock, upsized from 20,000,000. The company has granted the underwriters a 30-day option to purchase up to an additional 3,300,000 shares of common stock as well. RSP Permian expects total gross proceeds of $874.5 million.
