Parsley Energy (PE) said Tuesday, Jan. 10, after the markets closed that it will acquire acreage and producing oil and gas properties adjacent to the company's existing operating areas in the Midland and southern Delaware basins for an aggregate cash purchase price of $607 million.
Austin, Texas-based Parsley did not disclose the group of sellers, but two sources familiar with the deal said Apache (APA) was among the main sellers. Apache sold assets in Reeves, Reagan and Glasscock counties, while the deal also included a group of smaller sellers, one of these people said.
Houston-based Apache tapped Citigroup Inc. to market the Reeves county assets, the first person said. An Apache official declined to comment to The Deal, a sister publication of TheStreet.
Meanwhile, Encana (ECA) was thought to be involved in Upton County, but a company official told The Deal that Encana was not a seller in this transaction.
In the Midland Basin, Parsley said it would pick up about 17,800 net leasehold acres in Upton, Reagan, Glasscock, and Midland counties in Texas for approximately $402 million, and in the southern Delaware Basin, the company will tack on roughly 5,200 net acres in Texas' Reeves, Pecos, and Ward counties for $205 million.
Parsley also said it will pick up mineral interests in the southern Delaware Basin for $43 million.
Apache's involvement adds up, as analysts have called the company a seller in 2017, while The Deal reported in September that it could be looking to part ways with its non-Alpine-High assets in west Texas' Permian Basin. The Delaware and Midland basins are sub-formations of the Permian Basin.
Parsley Energy intends to finance the deal through an equity offering, which it said Wednesday it had upsized to 22 million shares of Class A common stock at $35 per share for total gross proceeds of about $770 million.
Morgan Stanley and BMO Capital Markets are joint lead book-runners on the equity offering. The underwriters have an option for 30 days to purchase up to 3.3 million shares of Class A common stock from Parsley, which would raise an additional $115.5 million.
Parsley shares were in the red by more than 1% in Wednesday trading on the news, which will bring with it share dilution for current investors.
The attractive bolt-on acquisitions, and news that the company expects strong production growth in 2017, were not enough to help shares Wednesday. Seaport Global Securities analysts said Wednesday the outlook was likely muted by a larger-than-expected capital expenditure program that will see the company spend between $750 million and $900 million, well above the Street's estimates of $652 million.
Following the over-equitized transactions, Williams Capital analyst Gabriele Sorbara said the company will have $950 million of total debt and $356 million of cash on hand, representing a net debt-to-total capitalization of 14.6%. Williams Capital calculates Parsley will thus have liquidity of about $1.04 billion, consisting of $600 million available under its borrowing base and $436.5 million of cash on hand.
Parsley said any transactions not already closed are set to close by the end of February. Parsley did not return a request for comment from The Deal.