As a result of the transactions, Laredo Petroleum will have more than 30,000 highly productive, contiguous net acres in Howard County, Texas, and a near-term pathway to increasing its oil cut to more than 50% from the current 30%, says CEO Jason Pigott. (Source: Shutterstock.com)
Laredo Petroleum Inc. announced over $1 billion worth of transactions on May 9, which the Tulsa, Okla.-based independent says will accelerate its strategic ambitions in the Permian Basin.
In a company release, Laredo said it had signed an agreement to acquire the assets of Sabalo Energy LLC, a portfolio company of EnCap Investments LP, and a nonoperating partner for approximately $715 million in cash and stock. Additionally, the company announced the partial sale of operated PDP reserves in gas-weighted legacy assets in Reagan and Glasscock counties, Texas, to an affiliate of Sixth Street Partners LLC.
Laredo expects the $405 million of proceeds from the sale to partially fund its acquisition, which includes roughly 21,000 contiguous net acres directly offsetting Laredo’s existing Howard County leasehold in the Midland Basin of West Texas.
“The transformational impact for Laredo of the combined transactions is significant,” Jason Pigott, the company’s president and CEO, said in a statement on May 9. “Upon closing, we will be positioned for sustainable free cash flow generation and significant deleveraging, have more than 30,000 highly productive, contiguous net acres in Howard County and a near-term pathway to increasing our oil cut to more than 50% from the current 30%.”
The current production on the acquired properties is about 14,500 boe/d (83% oil, three stream) with an estimated next 12-month oil decline of 35%, according to the company release. PDP reserves are approximately 30 million boe (73% oil, three stream).
The transaction adds roughly 120 operated oil-weighted locations and 150 nonoperated locations to Laredo’s drilling inventory, 83% of which, the company noted, are capital efficient long laterals of 10,000 feet or greater.
In a statement commenting on the sale of Sabalo to Laredo, Doug Swanson, managing partner of EnCap, said: “This transaction complements Laredo’s existing asset base and strategy and accelerates the company’s transformation to becoming a leading independent operator in the Midland Basin.”
“Laredo is well positioned to maximize value from the Sabalo assets and we view this transaction as compelling for Laredo shareholders, including EnCap, as part of this transaction,” Swanson added in the statement, as the transaction was comprised of $625 million in cash plus approximately 2.5 million shares of Laredo common equity.
The sale also announced May 9 comprises 37.5% of Laredo’s working interest in the legacy PDP reserves and does not include the Western Glasscock acreage acquired in late 2019.
The company said divested reserves were approximately 94 million boe (18% oil) with associated production of approximately 25,000 boe/d (23% oil), at closing. The deal included wellbore working interest only and Laredo will retain all undeveloped locations.
Laredo also expects additional potential cash-flow based earn-out payments over the next six years from the sale.
The company said both transactions are forecast to close July 1. Citigroup and Houlihan Lokey provided advisory services on the Sabalo acquisition. Houlihan Lokey also acted as financial adviser on the PDP sale to Sixth Street. Akin Gump and Willkie Farr & Gallagher served as Laredo’s legal advisers. Jefferies was exclusive financial adviser to Sabalo and Bracewell served as Sabalo’s legal advisor. White & Case acted as legal adviser to Sixth Street.
Recommended Reading
Shell to Combine Upstream and LNG Operations
2023-01-30 - Shell will combine its oil and gas production and LNG divisions as part of broader changes under new CEO Wael Sawan, which the company said could result in some job cuts.
Big Oil Joins Farmers, Biofuel Groups to Tout More Ethanol in US Fuel
2022-11-22 - API’s support is a win for the biofuel and farm groups because the oil industry has at times resisted efforts to expand the market for ethanol.
Oil Price Cap May Widen Russia's 2023 Budget Deficit, Ministry Says
2022-12-27 - Moscow's acknowledgment was the clearest yet that the $60 per barrel cap, imposed on Dec. 5 by the Group of Seven, European Union and Australia with the aim of limiting Russia's ability to fund the military campaign, could indeed hit state finances.
Stocks and Commodities Jump as China Drops Quarantine Rule
2022-12-27 - Stock markets gained on Dec. 27 after China said it would scrap its COVID-19 quarantine rule for inbound travellers - a major step in reopening its borders.
Equinor Injects $3.7 Billion into its Energy Trading Business
2022-12-21 - "Trading companies...must post collateral to cover potential price fluctuations in the period from when a trade is struck to when the energy is actually delivered," Danske Commodities' Jakob Sorensen said.