Laredo Petroleum Acquires Sabalo Energy’s Midland Basin Assets
NYSE-listed Laredo Petroleum Inc. has entered into a Purchase and Sale Agreement (PSA) with Sabalo Energy LLC, a portfolio company of EnCap Investments LP, to acquire its Midland basin assets in Texas.
Laredo will acquire the Sabalo Energy’s assets from EnCap Investments and an undisclosed partner in exchange for a total consideration of US$715 million, which includes an initial cash consideration of US$625 million, and an additional stock consideration of approximately US$90 million payable via the issuance of approximately 2.5 million Laredo common shares to EnCap, at an implied price of US$36 per share.
The assets acquired include approximately 21,000 net acres of Midland basin assets located in Howard County, Texas, adjacent to Laredo’s existing leasehold position. The acreage is 100% held by production with primary targets in the Wolfcamp and Spraberry formations. The assets also include approximately 120 operated oil-weighted locations with 91% working interest, and approximately 150 non-operated locations with 12% working interest. The acreage currently has total proved (1P) reserves of approximately 30 million barrels of oil equivalent (MMboe), of which 73% is oil, and an average daily production of approximately 14,500 barrels of oil equivalent (boe/d), of which 83% is oil.
Laredo has also entered into a separate agreement with an affiliate of San Francisco-based investment firm Sixth Street Partners LLC to divest 37.5% of its working interest in operated proved developed producing (PDP) reserves of its legacy leasehold in Reagan and Glasscock counties in Texas for total proceeds of US$405 million, plus additional potential cash flow-based earn-out payments over the next six years. The sale includes only Laredo’s wellbore working interest in developed locations, with Laredo retaining all undeveloped locations. The assets divested contain 1P reserves of approximately 94 MMboe, of which approximately 82% is gas, as of December 31st, 2020, and have an estimated average daily production of approximately 25,000 boe/d, of which approximately 77% is gas.
“The transformational impact for Laredo of the combined transactions is significant. Upon closing, we will be positioned for sustainable free cash flow generation and significant deleveraging, have more than 30,000 highly productive, contiguous net acres in Howard County and a near-term pathway to increasing our oil cut to more than 50% from the current 30%,” said Jason Pigott, Laredo’s President & CEO.
Tulsa-based Laredo Petroleum is focused on the acquisition, exploration and development of oil and natural gas properties in the Permian basin of West Texas.
Citigroup and Houlihan Lokey are acting as financial advisors on the Sabalo Energy asset acquisition, and Houlihan Lokey is acting as financial advisor to Laredo on the PDP reserve sale to Sixth Street.
Both the transactions are subject to customary closing conditions, and are expected to close by July 1, 2021.