HOUSTON — A subsidiary of Denver-based producer QEP Resources is buying oil and gas properties in the Permian Basin for $950 million, a move to hike the oil production on its books, the company said Monday.
The deal, slated to close by the end of next month, would mark QEP’s entry into the West Texas field and push the company toward a more oil-centric balance sheet.
QEP “has been focused on expanding our footprint in the world-class crude oil provinces of North America,” said CEO Chuck Stanley in a written statement.
The seller, Houston-based oil and gas producer EnerVest Ltd., said this deal would bring its property sales this year to more than $1.4 billion once closed, the natural end game of its private equity-like business of acquiring, developing and selling assets.
“Most companies don’t sell their best assets, they sell their worst: We’re not trying to build an Apache or an Exxon, we’re trying to deliver returns to our investors,” said John Walker, president and chief executive of EnerVest, in an interview Monday.
The properties, more than 26,500 net acres near Midland, have a daily production of 6,700 barrels of oil equivalent, 68 percent of which is oil. In terms of acreage, the deal would make QEP one of the smallest public operators in the Permian. All told, the acreage has 47 million barrels of oil equivalent in net proved reserves.
Walker said the properties were EnerVest’s most attractive treasure in the Permian, and that he wouldn’t be surprised if the acreage produced 30,000 barrels per day in the next 10 to 15 years.
The deal “put to rest persistent concerns” that QEP could run low on oil inventory because its reserves in North Dakota’s Bakken Shale could be depleted in six to seven years, said Tim Rezvan, an analyst with Sterne Agee, in a note to clients Monday.
QEP was the 15th-largest operator in the Bakken with 116,000 net acres in the region in the third quarter. The largest operator, Continental Resources, held about 1.2 million net acres in the Bakken, according to Bloomberg data.
The company said it could drill more than 200 vertical and around 775 horizontal wells in the region. QEP Resources’ shares fell 4.45 percent to $30.03 in early trading Monday.
“Strategically, it’s good they’re adding an oil growth platform, but the pricing is on the high end, and it’s an area with a lot of vertical wells,” said Hsulin Peng, an analyst with Robert W. Baird & Co.
The market is also factoring in “a higher execution risk,” indicating investors are concerned about the fact that the Permian is new geography for QEP: “You have to think about the capability they have to be successful in the new area,” Peng said.
EnerVest, which raises its own capital like a private equity firm, bought most of the Permian Basin assets last year.
The Houston firm has already set up its new portfolio of investments, snapping up $1.5 billion in oil and gas properties this year. Walker said EnerVest is looking to spend $2 billion on new oil and gas property next year, and some of that could be in the Permian.
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