Laredo Petroleum Inc. (NYSE: LPI) is upgrading its Midland Basin operations with an acquisition that will drive longer laterals and capital efficiencies.
Laredo said July 14 it signed a purchase and sale agreement with an undisclosed company to acquire additional acreage and Spraberry rights within its existing footprint. The Tulsa, Okla.-based company plans to cover the acquisition’s $125 million price tag with an equity offering.
The primary focus of the acquisition is the company’s acreage position in western Glasscock County, Texas. The purchase price is lower than other recent Midland transactions, but analysts said the mishmash of formations makes it hard to know what the acreage is worth.
David Tameron, senior analyst at Wells Fargo Securities LLC, said the deal makes sense for Laredo and continues the industry trend of blocking up acreage in the Permian through swaps or acquisitions.
“Particularly given the history/fractured ownership of the Permian, we would expect these types of transactions to continue,” Tameron said in a report.
Laredo’s acquisition consists of about 9,200 net acres in Glasscock and Reagan counties. The company said the acreage bolts on directly to current drilling units, enabling development using 10,000-foot or longer laterals.
The purchase also includes increased working interest in Laredo-operated vertical wells, adding production of about 300 barrels of oil equivalent per day net to the company.
Tameron estimates the purchase price is about $12,000 per acre, based on production and straight acreage.
“However, given that formation rights differed across the acreage, it’s hard to get a true read on the transaction metrics,” he added.
About 6,300 net acres of Laredo’s acquisition is in the Spraberry Formation. The remaining 2,900 net acres are prospective for the Spraberry, Upper, Middle and Lower Wolfcamp, Canyon and Cline zones.
The acreage will also be augmented by the company’s earth model, which is an in-house database across 140,000-plus acres in the Permian Basin.
“Acquiring additional Spraberry rights, utilizing the earth model to optimize location selection and completion design and drilling long laterals along the new Western Glasscock production corridor enables the company to efficiently develop this large, contiguous acreage block in western Glasscock County,” Randy A. Foutch, Laredo’s chairman and CEO, said in a statement.