SM Energy Announces Permian Basin Acquisition

SM Energy Company (NYSE: SM) today announced that it has entered into a definitive purchase agreement to acquire 24,783 net acres in Howard County, West Texas, expanding the Company’s Midland Basin footprint to approximately 46,750 net acres. The acquired acreage position is largely contiguous and includes approximately 4,900 Boe per day net production (with two new wells coming on-line August 2016) and 6 MMBoe of proved developed producing reserves. The purchase price is $980 million and the seller is Rock Oil Holdings LLC.

President and Chief Executive Officer Jay Ottoson comments: “We are demonstrated leaders in operational performance in the Midland Basin, and we have been looking for some time to expand our asset base, in the right location under the right terms. This is a negotiated transaction for assets in Howard County, a region of the Midland Basin that is emerging as a top tier area for well performance.

“Our operational expertise in the region can be immediately applied to the acquisition assets. We expect that the implementation of pad drilling, reservoir modeling, zipper frac’s, and leading edge completion technologies will add value from the start. 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.

“Continued portfolio management, concentrating capital allocation to highest return programs and operating at peer leading performance levels will allow us to generate higher company-wide margins, cash flow growth and value creation for our shareholders going forward.”

The transaction is expected to close on October 4, 2016, with an effective date of September 1, 2016 and will be subject to customary purchase price adjustments. The closing of the transaction is subject to the satisfaction of customary closing conditions, and there can be no assurance that the transaction will close on the expected closing date or at all.

As provided above, average production represents the July 2016 average, on a 3-stream basis, and proved developed producing reserves are estimated by SM Energy and have not been verified by a third party.

Jefferies served as lead financial advisor to Rock Oil LLC. Petrie Partners also acted as a financial advisor to Rock Oil.

Source: SM Energy Company
Date: Aug 8, 2016