Ring Energy Inc. (REI) is making its debut in the Delaware Basin with the addition of acreage that will nearly double its production in West Texas.

Ring said May 26 it signed an agreement with Finley Resources Inc. to acquire 14,000 net acres in Culberson and Reeves counties, Texas, for $75 million.

Ring, based in Midland, Texas, will be the operator of the properties and have an approximate 98% working interest and average net revenue interest in excess of 78%.

Current net daily production from the properties is about 1,300 barrels of oil equivalent per day (boe/d), about 80% oil. The initial proved developed producing (PDP) reserve is an estimated 4.7 million net boe with a PV-10 value of about $128.5 million, according to Cawley, Gillespie and Associates.

The acquisition will nearly double Ring's daily production and should drive nice additional revenues and cash flow, said Jason Wangler, analyst, Wunderlich Securities Inc., in a report.

Pro forma for the acquisition, Ring will have more than 2,750 boe/d of current net daily production from its Permian Basin assets and more than 45,000 gross (32,000 net) acres in the region. The company currently has acreage in the Permian’s Central Basin Platform primarily in Gaines and Andrews counties.

“This higher production boosts our numbers nicely higher and proves to be accretive for Ring, something we had expected given its history of smart acquisitions with ample running room,” Wangler said.

The transaction implies favorable metrics for the company of about $57,700 per boe/d and about $16 per boe for PDP reserves, said Jeff Grampp, senior research analyst, Northland Capital Markets, in a report.

Through the deal, the company is making good on its M&A strategy that it announced in January. At the time, the company said it would continue to grow, whether organically or through acquisition, and is “postured to react immediately should the opportunity arise.” According to the company, deal opportunities continue to increase due to the downturn in commodity prices.

The company’s patient approach in the current downturn appears to have resulted in a substantial acquisition, said Patrick Rigamer, vice president and senior E&P analyst, Global Hunter Securities, in a report.

“While Ring’s existing assets are capable of generating impressive organic growth, growth by acquisitions has been a goal for Ring, and this acquisition should give the portfolio additional scale and diversity, a step we think investors will view positively,” Rigamer said.

He said the acquisition should also compliment the company’s existing vertical operations. Management is currently evaluating drilling locations on the acquired acreage and plans to announce its findings after closing the transaction.

Grampp said drilling locations will be vertical, targeting stacked pay intervals at 3,000 feet to more than 6,000 feet. This should result in “relatively inexpensive well costs, fairly similar to development of its existing Andrews County acreage.”

Management also sees potential to expand around this new position and create another core growth area, he said.

“While the lack of near-term horizontal potential may make the acquisition appear less exciting, we still view the move as a strong positive given favorable terms and strategic fit with Ring's core competency of vertical development,” he said.

The acquisition will be financed through the company's new $500 million senior credit facility, increased from $150 million, and existing cash reserves.

The facility will have an immediate borrowing base of $100 million, up from $40 million. SunTrust Bank provided committed financing to support the upsized borrowing base facility.

SunTrust Robinson Humphrey Inc. was exclusive financial adviser on the acquisition. The transaction has an effective date of May 1 and is scheduled to close on or before June 30.

Contact the author, Emily Moser, at emoser@hartenergy.com.