Oasis Petroleum expands into Delaware basin with $946-million acquisition

Oasis Petroleum Inc., Houston, will expand its operations into the Delaware basin through the acquisition of assets from Forge Energy LLC for $946 million. The deal, which includes a $483-million cash payment and 46 million shares of common stock, is effective Dec 1.

The agreement, expected to close in February 2018, covers 20,300 net acres across Loving, Ward, Winkler, and Reeves counties in Texas.

November production from the assets totaled 3,500 boe/d from 601 gross operated locations (76% working interest) and 507 net core locations targeting the Wolfcamp A, B, and C and the Bone Spring formations.

To finance the deal, Oasis priced an underwritten public offering of 32 million shares of common stock for gross proceeds of $305.6 million and plans to sell noncore Williston basin acreage in 2018 for “up to $500 million.”

The transaction metrics value the assets at $38,000/acre, in line with nearby recent deals, including the RSPP-Silver Hill deal and the CPE-Ameredev deal (both assuming $40,000/flowing), said Jefferies analysts in an investor note Dec 12.

Oasis said it plans to transfer knowledge from full-field development of the Williston basin to the acquired acreage with additional efficiencies from vertical integration of Oasis Midstream Services LLC and Oasis Well Services LLC.

With one rig running on the acreage and the potential to add a second rig in second-half 2018, Oasis plans to drill 16-20 gross wells and complete 6-8 gross wells with a capital program of $100 million in 2018. The largely contiguous acreage blocks allow for longer lateral development with an expected median lateral length of 8,000 ft, Oasis said.

The deal doubles Oasis’s core net inventory, said Tommy Nusz, company chairman and chief executive officer, noting that the new Permian assets “deliver a consolidated position in the deepest and highest pressured part of the Delaware in the heart of the oil window.”

Oasis production for October was 70,000 boe/d, and November operational production exceeded 72,000 boe/d. Guidance for fourth quarter 2017 is increased from 69,000–72,000 boe/d, to 71,000–73,000 boe/d.

The company plans to continue to run 5 rigs in the Williston basin and will assume 1 rig currently run by Forge Energy LLC in the Delaware basin.

Lease operating expenses in this year’s fourth quarter are expected to range $7-7.50/boe and differentials are expected at 50¢-$1/boe.

Oasis continues to expect production in the Williston basin to exceed 83,000 boe/d exiting 2018, not accounting for volumes to be divested through asset sales, and expects production to rise to more than 5,000 boe/d in the Delaware basin exiting 2018.