So far, Kingfisher County, Okla., is proving up nicely—at least at attracting dollars.

Private equity firm Bayou City Energy and a subsidiary of Alta Mesa Holdings LP have created a joint development area (JDA) in which Bayou will fund drilling in the Stack Play in Kingfisher County.

The deal will fund up to $128 million in drilling, with any overruns picked up by Alta Mesa Holdings’ subsidiary Oklahoma Energy Acquisitions.

In July, Alta Mesa acquired 19,000 net acres in Kingfisher County from Gastar Exploration Inc. (NYSE: GST) for $46 million. The company’s deal with Bayou enables it to reduce risk drilling Kingfisher acreage, enhance liquidity and add proved reserves.

In another deal involving Kingfisher acreage, Devon Energy Corp. (NYSE: DVN) said Dec. 7 it would buy 80,000 net surface acres in the Anadarko Basin’s Stack Play for $1.9 billion.

Alta Mesa’s initial drilling program will include the development of 40 horizontal wells in two tranches of 20 wells each. Development operations on the wells began January 2016 and are expected to continue into early 2017.

Under the JDA, Bayou City committed to fund 100% of Alta Mesa’s working interest share up to an average $3.2 million in drilling and completion costs per well for any tranche.

If total drilling costs the wells in any tranche exceeds $64 million, Alta Mesa’s subsidiary will be responsible for its and Bayou City’s working interest share of the drilling costs.

In exchange for funding drilling and completion costs, Bayou City will receive a portion of Oklahoma Energy’s working interest in each joint well. Alta Mesa will recover the interest as Bayou City’s returns rise.

Initially, Bayou City will receive 80% of Oklahoma Energy’s working interest. As targeted internal rates of return (IRRs) are reached, interest will revert to Oklahoma Energy.

At 25% IRRs, Bayou City’s working interest would be reduced to 7.5% of Oklahoma Energy’s initial interest.

“Bayou City is the ideal financial partner to help our company achieve its objectives in the Midcontinent region," said Hal Chappelle, CEO, Alta Mesa.

Bayou City Founding Partner William McMullen said Alta Mesa brings technical expertise management to develop “what is rapidly being revealed as one of the premier unconventional resources in the United States.”

“These wells deliver outstanding returns even at today's depressed hydrocarbon prices, and Bayou City Energy could not have found a better operating partner than Alta Mesa Holdings, who is leading the delineation of the play with demonstrated repeatable successes and its characteristic operational excellence," McMullen said.

Contact the author, Darren Barbee, at dbarbee@hartenergy.com.