[Editor's note: This story was updated from a previous version posted at 6:10 p.m. CT Jan. 12.]

Anadarko Petroleum Corp. (NYSE: APC) agreed Jan. 12 to sell its 155,000-net-acre Eagle Ford position to buyers Sanchez Energy Corp. (NYSE: SN) and private-equity partner Blackstone Energy Partners.

The deal alters the trajectories of both E&Ps, with Anadarko fortifying a massive cash position and Sanchez punching its way into a higher weight class.

The $2.3 billion deal pairs Sanchez and Blackstone together in a 50/50 partnership in the Western Eagle Ford in an area Sanchez will call Comanche. Anadarko’s acreage is contiguous to the Catarina property that Sanchez has built up successfully during the past two years.

Sanchez will immediately soak up average production of 67,000 barrels of oil equivalent per day (boe/d) and take advantage of low-cost completions of 132 drilled but uncompleted wells (DUCs).

Sanchez said about 40% of capex allocated to the acquisition will be spent on completing DUCs at a cost of about $1.7 million—making it the highest rate of return project in the company’s portfolio.

At the end of fourth-quarter 2016, sales volumes from the properties totaled about 45,000 barrels per day (bbl/d) of liquids and 131 million cubic feet per day (MMcf/d) of natural gas.

Sanchez Energy, map, Eagle Ford, shale, South Texas

Sanchez pointed to its 2014 Catarina acquisition from Royal Dutch Shell Plc (NYSE: RDS.A), noting that it doubled production there in nine months and tripled it within 15 months.

Sanchez will own more than $900 million in PV-10 value after the deal closes. However, the company’s commitment of $1.15 billion to the deal is roughly double the company’s market capitalization as of Jan. 12.

Kyle Rhodes, an analyst at RBC Capital Markets, said Sanchez will fund its share of the purchase with $400 million cash on hand and preferred equity and debt.

Sanchez paid roughly $3,000 to $4,000 per acre, which Rhodes considered an “attractive price.”

“We view this update as a positive for the stock given the attractive valuation and ability to structure a deal of this size without significant equity dilution,” Rhodes said.

Anadarko Still Owns The Pipes

Anadarko Petroleum is exiting primarily two counties—Dimmit and Webb counties, Texas—at a price of about $34,400 per flowing barrel—a premium to the $29,365 that SM Energy Co. (NYSE: SM) received Jan. 3. SM Energy is selling its stake of nonoperated acreage it owns that overlaps Anadarko’s position.

Anadarko’s South Texas MLP, Western Gas Partners LP (NYSE: WES), will continue to own and operate its midstream assets in the region but transfer minimum volume commitments (MVCs) to Sanchez and Blackstone.

The deal gives Anadarko an inrush of funding to accelerate investment in higher-return oil opportunities in the Delaware and Denver-Julesburg (D-J) basins as well as the deepwater Gulf of Mexico (GoM), said Al Walker, the company’s chairman, president and CEO.

Combined, the two onshore areas and the GoM drive the company’s ability to deliver a 12% to 14% five-year compounded annual oil growth rate, Walker said.

“We are deeply grateful to the team at Anadarko, which has built the Eagle Ford Shale into a coveted asset that will continue to be an important domestic source of energy for our nation,” Walker said.

With Anadarko’s purchase of Freeport-McMoRan’s GoM rights and its Carthage, Marcellus and Eagle Ford divestitures, Anadarko’s cash balance is likely more than $6 billion, said Charles Robertson II, an analyst with Cowen & Co.

“We expect the Company's total production mix to shift more than 10% towards liquids in 2017 vs. 2016 post closing of Marcellus and Eagle Ford sales,” Robertson said.

David Tameron, senior analyst at Wells Fargo Securities, said Anadarko has divested more than $7 billion in assets since 2016, helping the company high-grade its portfolio and shore up its balance sheet.

The question “could now be what to do with the cash. Wall Street’s focus will likely turn to M&A, with the home run acquisition in our mind being the offsetting Permian checkboard,” Tameron said.

Comanche Peaks

Sanchez’s total resource potential will expand by about 600 MMboe, the company said in a presentation.

Sanchez plans to plow through its DUC inventory and exploit infill drilling opportunities in the vicinity. For 2017, the company plans to drill at least 100 new wells with activity focused on the lower, middle and upper Eagle Ford.

Sanchez and Blackstone plan to use cash on hand and commitments received from financial partners and commercial banks to finance the acquisition, with the deal projected to close in first-quarter 2017. The companies essentially split the $2.275 billion purchase price.

Sanchez said that based on the assets reserves, production and location, its production will increase to more than 100,000 boe/d in 12 to 18 months while operating within cash flow.

Anadarko Petroleum, Sanchez Energy, Blackstone, Shale, Texas, Eagle Ford, Transaction, chart

Net to Sanchez, the company will have 33,500 boe/d production and 77,500 net acres on which to drill.

Tony Sanchez III, the company’s CEO, said the accretive and transformative acquisition more than doubles its drilling inventory and provides a path for strong growth within projected cash flow.

“With the asset strategically located adjacent to our existing Catarina asset, we anticipate substantial operating synergies and other benefits arising from the scale and concentration of our Eagle Ford position,” Sanchez said. “Our continued focus on the Western Eagle Ford, expertise at multi-bench development, efficient cost structure and strong liquidity position will enable us to create significant value from the acquired assets.”

Sanchez said that when the acquisition closes, the company will triple its exposure to the upper and middle Eagle Ford trends it has developed in its Catarina area.

The upper and middle sections thicken in the southern part of Dimmit where the majority of the acquired leasehold is being acquired, he said.

“Upon closing the transaction, we believe we will have locked up the core of the trend within the volatile oil window,” Sanchez said. “With the ability to duplicate the cost structure of our Catarina and Maverick operations throughout the Comanche Eagle Ford Asset, we expect to further improve operating efficiencies while enhancing our capability to achieve sustainability of well cost reductions over time.”

Latham & Watkins LLP represents Anadarko in the transaction.

Intrepid Partners served as the sole financial adviser for Sanchez Energy. Legal advice was provided by Akin Gump Strauss Hauer & Feld LLP and Kirkland & Ellis LLP. JPMorgan Chase & Co. and Citigroup Global Markets Inc. are joint lead arrangers and joint book-running managers on the new secured credit facility.

Jefferies & Co. served as the sole financial adviser to Blackstone.

Darren Barbee can be reached at dbarbee@hartenergy.com.