If Midland Basin prices seemed on the high side before, QEP Resources Inc. has (NYSE: QEP) upped the ante considerably in a deal that doubled the average amount paid per acre, said Chris Stevens, an analyst at KeyBanc Capital Markets Inc.

QEP said June 21 that it entered an agreement with several parties to acquire about 9,400 net acres in the northern Midland Basin in Martin County, Texas, for $600 million. The acreage includes production of 1,400 barrels of oil equivalent per day (boe/d) from 96 vertical wells.

The acreage also contains more than 430 horizontal drilling locations over four horizons—the Wolfcamp A, Wolfcamp B, Middle Spraberry and Spraberry shales, QEP said.

Assuming $40,000 per Mboe/d for the production value, QEP is paying $58,000 per acre, the highest amount so far in a Permian deal, Stevens said.

The acreage deserved a premium price, Stevens said. The acreage is contiguous and de-risked for four quality zones.

“But the valuation is surprisingly high,” Stevens said, adding that it “provides support for $/acre valuations implied by the Permian public operator that are in the $30,000 to $70,000/acre range” or an average $46,000/acre.

From a location inventory perspective, QEP is paying $1.3 million per location, which is below the historical $1.5 million per location average paid in the Midland Basin.

However, at an estimated average lateral length of 7,500 ft, KeyBanc estimates that QEP is using an average of 11 wells per zone per section to calculate the 430 locations on the acreage, “which we believe to be on the aggressive side as it does not leave much room for upside.”

Most operators have assumed they can drill eight wells per zone per section.

Operators such as Energen Corp. (NYSE: EGN) estimate 28 wells per section for its inventory count in the Spraberry and Wolfcamp package in Martin County. Diamondback Energy (NYSE: FANG) estimates about 30 wells/section and other E&Ps have drawn similar conclusions.

QEP has launched a public offering of 20 million shares of its common stock to help pay for the transaction. The company expects to receive total gross proceeds of about $367 million.

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