Laredo Petroleum announced a purchase and sale agreement to acquire the assets of Sabalo Energy, a portfolio company of EnCap Investments, and a non-operating partner for about $715 million.
The deal is subject to customary closing price adjustments, comprised of $625 million in cash and approximately 2.5 million shares of Laredo common equity.
Additionally, the Laredo announced the sale of 37.5% of its operated proved developed producing (PDP) reserves in its legacy leasehold in Reagan and Glasscock counties to an affiliate of Sixth Street Partners for proceeds of $405 million and additional potential cashflow based earn-out payments over the next six years. None of the PDP reserves are in Howard or Western Glasscock counties. Both transactions are expected to close July 1.
“The transformational impact for Laredo of the combined transactions is significant,” said Jason Pigott, President and Chief Executive Officer. “Upon closing, we will we will be positioned for sustainable free cash flow generation and significant deleveraging, have more than 30,000 highly productive, contiguous net acres in Howard County and a near-term pathway to increasing our oil cut to more than 50% from the current 30%.”
The value derived from employing Laredo’s efficient, low-cost operations in Howard County has already been established on its current leasehold and the company expects to perform equally well on this new acreage, Pigott said.
“Additionally, we will be … maintaining our prior commitments to reducing greenhouse gas intensity, methane emissions and eliminating routine flaring,” he said.
The transaction accelerates Laredo’s transformation to becoming a leading independent operator in the Midland Basin, said Doug Swanson, Managing Partner of EnCap.
“Laredo is well positioned to maximize value from the Sabalo assets and we view this transaction as compelling for Laredo shareholders, including EnCap, as part of this transaction,” Sanson said.
Citigroup and Houlihan Lokey provided advisory services on the Sabalo acquisition and Houlihan Lokey acted as financial advisor on the PDP sale to Sixth Street. Akin Gump and Willkie Farr & Gallagher served as Laredo’s legal advisors. Jefferies acted as exclusive financial advisor to Sabalo and Bracewell served as Sabalo’s legal advisor. White & Case acted as legal advisor to Sixth Street.
Acquisition highlights include:
- ~21,000 contiguous net acres (86% operated, 100% held by production) directly offsetting Laredo’s existing Howard County leasehold
- ~120 operated oil-weighted locations (91% WI) and ~150 non-operated locations (12% WI)
- 83% of locations are capital efficient long laterals of 10,000 feet or greater
- Currently producing ~14,500 BOE per day (83% oil, three stream) of low-decline production with an estimated next 12-month oil decline of 35%
- PDP reserves of approximately 30 million BOE (73% oil, three stream)
- Ideally situated for Laredo’s efficient, low-cost operating structure
- Development and spacing assumptions of 12 wells per drilling spacing unit