Parsley Energy (PE - Get Report) said after the markets closed Monday that it bought oil and gas properties in West Texas' Midland Basin from an unnamed seller for $400 million in cash, its fourth acquisition in eight months.

The Austin, Texas, oil and gas company hopes to close the deal by Oct. 4, financing it by issuing debt and equity.

JP Morgan is the sole bookrunner for the equity offering, which involves selling 7.25 million shares for $243.2 million that could increase by another 1.08 million shares to $279.7 million. The debt offering of 6.25% senior notes due 2024 would bring in another $200 million.

Parsley's stock was down almost 3% on the news to $33.56 per share in morning trading.

The assets include undeveloped acreage and producing oil and gas properties in Glasscock County and associated mineral and overriding royalty interests.

The 9,140 net leasehold acres are near Parsley's own in Glasscock County and produce 270 barrels of oil equivalent per day from 60 net vertical wells. It said there are also 215 net horizontal drilling locations in the Lower Spraberry, Wolfcamp A and Wolfcamp B formation and additional horizontal drilling locations in the Middle Spraberry, Wolfcamp C and Cline formations.

Parsley said the properties have average working interest of 92% on identified drilling locations and are 99% held by production. The properties already have facilities and infrastructure, including five saltwater disposal wells, that will help current development, the company said.

The company said its first producing horizontal well on Glasscock County acreage it acquired in May has shown encouraging results.

Parsley Energy CEO Bryan Sheffield said in a statement that the acquisition establishes Glasscock County as another key development area for the company and that the properties may compete with the best of the company's horizontal drilling inventory given encouraging results on its first horizontal well in the area. He also said the acquisition of associated royalty interests boosts the properties' return profile.

"We continue to build a high-quality acreage footprint consisting of favorably distributed development areas that can accommodate significant rig count additions," he said. "We believe this acquisition represents an important step toward a large-scale, basin-wide development program that can generate sustainably strong production and cash flow growth."

Including this deal, Parsley has spent $1.2 billion on acquisitions over the last eight months. In April it picked up West Texas properties for $359 million in cash. It didn't name the seller but analysts said it was likely Anadarko Petroleum (APC) given the location of the acreage.

Analysts at the KLR Group said the transaction equates to around $36,000 per acre or $1.5 million per drilling location, assuming $40,000 per flowing barrel of oil equivalent on production and ascribing about $60 million of value for the royalty. "We are modeling the acquisition should have a minor positive value impact as the increase in drilling activity offsets the equity issuance," they said.

Seaport Global Securities estimates the deal works out to what looks like a pricey $42,500 per acre but noted that the mineral rights account for around $10,000 of the purchase price. They think the equity offering will dilute shareholders by around 4%.

Seaport said they're bigger fans of Parsley's acquisition than the $1.65 billion one also announced late yesterday by Concho Resources  (CXO - Get Report) in the same area. "[The] Glasscock bolt-on seems more core to its [Parsley's] program," they said.

Stifel analyst Daniel Guffey was also impressed with Parsley's acquisition, leading him to raise his net asset value and target price for the company by 18% to $40 per share. He currently has a buy rating on the stock.

"While the sticker price was higher than PE's previous acquisitions, we believe the price was fair when factoring in the potential inventory upside," he said in a note. "We continue to believe PE is well positioned to outperform 2017 growth expectations while maintaining a strong balance sheet."

Parsley has been thought to be a potential takeover target because of its unleveraged position and its high-quality assets, maybe by the likes of Exxon Mobil (XOM - Get Report) .

Author(s)

Claire Poole

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Due Date:

8/16/2016 11:35 AM

Intended Editor

Gregory Morcroft