Parsley Energy, Inc. (NYSE: PE) (“Parsley Energy,” “Parsley,” or the “Company”) today announced that it has entered into an agreement to acquire mineral rights under approximately 30,000 acres consisting of Parsley leasehold and other adjacent properties in Pecos and Reeves Counties, Texas in the Southern Delaware Basin for $280.5 million in cash. The proposed transaction is scheduled to close by July 14, 2016, subject to customary closing conditions. Parsley intends to finance this acquisition through debt and equity issuances announced concurrently with the announcement of the acquisition.
Parsley also announced the purchase of additional working interests in the Company’s leasehold in Pecos and Reeves Counties totaling 885 net acres for $9.0 million in cash. This transaction closed on May 10, 2016.
Mineral Rights Acquisition
- Acquired mineral rights in 29,813 acres (hereafter “mineral acreage”) with an average royalty interest of 17.5%.
- Mineral rights boost net revenue interest (“NRI”) on approximately 186 gross/net horizontal drilling locations in the upper Wolfcamp interval, assuming one flow unit and 660′ between-well spacing. The Company is assessing the potential for additional flow units in the Wolfcamp complex and the Bone Spring interval on acreage associated with acquired mineral rights.
- The average NRI on horizontal drilling locations associated with acquired mineral rights increases from 75% to 92.5%.
- Estimated net current production associated with acquired mineral rights is approximately 280 barrels of oil equivalent per day.
- 82% of mineral acreage represents Parsley leasehold, with the balance leased and operated by other operators.
- Parsley also acquired surface rights on approximately 80% of mineral acreage, eliminating compensation for surface damages and water procurement, among other costs, and also facilitating optimal well and facility placement.
- Consistent with the Company’s previously announced capital plan, Parsley expects to complete 5-7 wells in the Southern Delaware Basin this year. Of these, the Company expects 3-5 to be completed on the acquired mineral acreage.
- The transaction is scheduled to close on or before July 14, 2016, subject to the satisfaction of customary closing conditions.
Working Interest Acquisition
- Through a separate transaction that closed on May 10, 2016, Parsley acquired additional working interests in its Southern Delaware leasehold in Pecos and Reeves Counties.
- All of the incremental working interests are associated with mineral acreage, bringing Parsley’s working interest to 100% and NRI to 87.5% in the affected properties.
- Assuming just one flow unit in the upper Wolfcamp target interval, the acquired working interests translate to an additional 10 net horizontal drilling locations with an average lateral length of 7,250′.
“The pending minerals acquisition encompasses what we view as very promising portions of Parsley’sSouthern Delaware acreage and represents an important step toward unlocking the full value of Parsley’sSouthern Delaware assets,” stated Bryan Sheffield, CEO of Parsley Energy. “Increasing netbacks per barrel of oil equivalent with no incremental capital expenditures or operating expenses elevates the return profile on the associated acreage, making it among the most compelling in our corporate portfolio. In light of encouraging production trends on our first operated and non-operated wells in the Southern DelawareBasin and with current AFEs down to $5.7 million for a horizontal Wolfcamp well with a 7,000′ lateral in the Southern Delaware, we anticipate that the acreage associated with the mineral interests we are acquiring will represent a central focus of our development program from this point forward. The acquisition of surface rights on the majority of the mineral acreage further supplements its development potential.”
Projected Economic Impact of Mineral Rights
Parsley believes the addition of mineral interests will enhance already compelling economics on the relevant portion of the Company’s Southern Delaware horizontal drilling inventory. The following table shows the projected uplift in rate of return (“ROR”) and net present value (“NPV”) associated with the receipt of a 17.5% royalty interest on a horizontal Wolfcamp well with a 7,000′ stimulated lateral. The analysis is based on a type curve assigned to Parsley’s proved reserves in the Southern Delaware Basin by the Company’s reserve auditors, Netherland, Sewell & Associates, Inc. (“NSAI”).