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RSP Permian Inc. (NYSE: RSPP) closed its deal Nov. 18 to acquire 4,100 net acres in the Midland Basin with money to spare—a lot of money.
RSP purchased an estimated 86 net horizontal locations from Wolfberry Partners Resources LLC with about 15,000 net effective horizontal acres of drilling space at average lateral lengths of 8,100 feet.
At closing, the acreage will be fully operated by RSP.
When it announced the deal in October, RSP also conducted a public offering of 8.74 million shares. The company received net proceeds of $218.1 million—about $81 million or 37% more than the transaction’s cost.
Following the acquisition, the company projected on Nov. 2 that its liquidity would be $738.4 million. The company’s fall borrowing base review increased its revolving credit facility borrowing base to $600 million with no amounts drawn as of that date.
That’s despite RSP’s continued deal making, with announced acquisitions of 10,700 net acres for $450 million since August.
Finishing that stretch with excess capital will help counter RSP’s anticipated 2016 cash flow outspend of about $100 million, according to Tudor, Pickering, Holt & Co. (TPH).
Steve Gray, CEO, said in October that RSP planned to begin drilling on the newly acquired properties “soon after we close on them.”
On Nov. 2, Gray said that because of weak oil prices, “we have elected to drop from four operated horizontal rigs to three rigs this month, and plan to moderate our completion pace to maintain our capital discipline, liquidity position and prudently manage our outspend going into 2016.”
Nevertheless, RSP has the flexibility to operate two, three or four horizontal rigs in 2016 and anticipates:
- 2016 completions will primarily be in its highest-return operating areas, similar to 2015;
- A larger than normal backlog of wells will wait on completion until 2016; and
- Double-digit year-over-year production growth in 2016 under all contemplated rig scenarios.
The company has established a sliding-scale capex ranging from roughly $225- to $375 million based on the price of oil.
Despite the decrease in rigs, RSP increased its 2015 production guidance due to stronger results in the year’s first three quarters, the impact of other acquisitions and anticipated drilling and completion for the remainder of the year. The Midland acquisition adds an additional 1.9 thousand barrels of oil equivalent per day (Mboe/d) based on August volumes.
Gray said that 2015 average daily production will increase to 20,750-21,250 boe/d and total capex, excluding acquisitions, is narrowed to a range of about $400- to $420 million.
TPH served as financial adviser to Wolfberry Partners Resources LLC on its sale of Midland Basin assets to RSP.
Contact the author, Darren Barbee, at dbarbee@hartenergy.com.
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