[Editor's note: This is a breaking news story; check back for updates.]

Callon Petroleum Co. (NYSE: CPE) tacked on more Midland Basin acreage Sept. 6 as it continues to build a core operating area in Howard County, Texas.

The company said it agreed to pay ArcLight Capital’s Plymouth Petroleum LLC $327 million cash to buy certain oil and gas producing properties and undeveloped acreage in Howard.

The acquisition, which includes nearly 5,700 net surface acres and about 2,300 barrels of oil equivalent per day (boe/d) of current net production, is the Natchez, Miss.-based company's second Midland deal so far this year.

In June, Callon closed an acquisition of 17,298 gross (14,089 net) surface acres in Howard for about $301 million. The company also gained additional acreage elsewhere in the Midland in Martin, Borden and Dawson counties in Texas.

More than 75% of Callon's Plymouth acquisition offsets the company's position in northwest Howard, which provides opportunities for shared infrastructure and extended laterals, the company said.

Pro forma, the company's Midland Basin position will include about 40,000 net surface acres—with about half, roughly 20,000 net surface acres, in northwest and central Howard. The location is immediately adjacent to its WildHorse operating region.

Callon Petroleum, map, Midland Basin, Howard County, Texas, acquisition

Highlights:

  • About 6,916 gross (5,667 net) surface acres, primarily located in Howard;
  • 167 gross (112 net) identified horizontal drilling locations targeting the Wolfcamp A, Lower Spraberry and Wolfcamp B zones, assuming current development spacing of six to eight wells per section;
    • An increase of Callon’s existing inventory of drilling locations in these delineated zones in its WildHorse operating region by more than 90%, the release said;
  • Current net production is about 86% oil from nine gross horizontal wells and 16 gross vertical wells, based on information provided by the seller;
  • Estimated 12.2 MMboe (87% oil) of net proved reserves as of Sept. 1, based on Callon's estimates of reserve and production information provided by the seller and its analysis of available geologic and other data; and
  • Overriding royalty interests in three 480-acre units offsetting the acreage, one of which is operated by Callon.

Upon closing, Callon will assume operatorship of more than 90% of the acquired acreage. The company expects to hold about 82% average working interest and 62% average net revenue interest.

The company intends to fund the acquisition with net proceeds from an equity offering and its revolving credit facility, the company said Sept. 6. RBC Richardson Barr is Callon's exclusive financial adviser in connection with the acquisition, which is expected to close by Oct. 20.

Plymouth is operated by Element Petroleum, which are both owned by ArcLight Capital Partners LLC.

Emily Moser can be reached at emoser@hartenergy.com.

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