Denver-based Centennial Resource Development said Monday it will pay $855 million for 35,000 net acres in the Delaware Basin, one of the country’s hottest petroleum plays right now.
Centennial is offering Silverback Exploration cash for oil and gas assets in Reeves County, Texas, that are adjacent to its existing holdings in the county.
“While we did not expect to make such a significant acquisition so quickly, we could not pass up the opportunity to accretively add core acreage offsetting our existing Centennial assets at such a compelling price,” Centennial CEO Mark Papa said in a statement.
The acquired assets produce oil and gas equivalent to 3,500 barrels a day and have room for at least another 600 drilling locations. The holdings are on the south end of the Delaware Basin, which is part of the larger Permian Basin, known for its ability to produce oil at some of the lowest costs in the country.
Multiple formations on top of each other or stacked plays allows for oil to be produced in the basin at under $40 a barrel, said Sarp Ozkan, manager of energy analytics with Drillinginfo, which recently acquired Denver-based Ponderosa Advisors.
In Reeves County, the various formations provide 4,800 feet of stacked plays for drillers to access. In the middle Bakken in North Dakota and Montana, by contrast, the pay zone is only 40 feet deep.
“You have a lot more room in the Permian and that leads to a lot more potential locations,” Ozkan said. He added that early finds in Reeves County suggest some of the formations there could be rich in natural gas and not just oil.
, or those with a big presence in the state, such as Noble Energy and Anadarko Petroleum, have joined the rush to get in on the Delaware Basin.
Centennial Resource filed for a in June, but pulled it after Riverstone Holdings, an investment fund formed to purchase oil and gas assets, offered to pay $175 million for a majority stake in the company.
On Oct. 11, Riverstone acquired Centennial Resource and merged it with a so-called “blank check” company that was already public. The company now trades on Nasdaq under the symbol CDEV.
Riverstone, which owns about half of Centennial’s common stock, will provide $500 million towards the purchase price in exchange for common and convertible preferred shares.
Centennial plans to issue stock and debt to cover the rest of the purchase. Shares of Centennial rose $1.09 or 7.1 percent on Monday to close at $16.40 a share.
Centennial currently has three rigs drilling in the Delaware Basin and plans to double that to six in the second half of 2017 and nine by the second half of 2018.
The Delaware Basin purchase is expected to close by Dec. 30.
