SM Energy to buy Midland basin firm for $980 million

Aug 08, 2016 12:00 AM

SM Energy Co., Denver, has agreed to acquire 100% membership interest in Rock Oil Holdings LLC and its 24,783 net acres in Howard County, Tex., from private equity firm Riverstone Holdings LLC for $980 million.

The acquired acreage is largely contiguous and includes 4,900 boe/d net production in July, and 6 million boe of proved developed producing reserves as estimated by SM Energy. Two wells are slated to come online in August.

Effective Sept. 1 and expected to close Oct. 4, the deal expands SM Energy’s Midland basin footprint to 46,750 net acres. Jay Ottoson, the firm’s president and chief executive officer, noted that Howard County “is emerging as a top-tier area for well performance” within the basin.

“We expect that the implementation of pad drilling, reservoir modeling, zipper fracs, and leading edge completion technologies will add value from the start,” Ottoson said. “We anticipate running one rig in the area in the fourth quarter of 2016 and two rigs throughout 2017. As a result, we are increasing our estimate of total capital spend for 2016 by approximately $15-20 million.”

In its second-quarter earnings report, the firm said it plans to focus its second-half Permian drilling activity on the Midland basin’s Sweetie Peck area, while dropping its lone Eagle Ford rig in August.

Last week, the firm announced that it had agreed to separate sales of waterflood assets in New Mexico and producing assets in North Dakota and Montana to undisclosed buyers. Yearend 2015 net proved reserves from the assets were 9.5 million boe, of which 87% was oil and 13% natural gas. Second-quarter net production was 3,300 boe/d, of which 82% was oil and 18% natural gas. Net acreage associated with the sales is 79,000 acres.

Denver- and Houston-based Rock Oil was formed in March 2014.

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