Executives at the Williston Basin driller Oasis Petroleum Inc. boasted of their large new acquisition in "core of the core" Permian Basin acreage, but the $946 million shift south did not play well with analysts or investors.
Oasis said the deal, announced after market hours Dec. 11, will bring the company 20,300 net acres across three Texas counties in the Permian's Delaware Basin from Forge Energy LLC in exchange for $483 million in cash and 46 million shares of Oasis common stock. The company said the deal is expected to close in February 2018.
In a call with analysts to discuss the move, CEO Tommy Nusz said Oasis is picking up "core of the core acreage."
"We expect wells to deliver returns of over 75% across the core of both Williston and the Delaware, and this transaction extends our core inventory life for Oasis," he said. "The new asset brings production of approximately 3,500 [barrels of oil equivalent] per day. We expect to continue the 2018 plan that we've been talking about in the Williston Basin, and we'll keep running one rig in the Delaware, with the option to add a second rig in the latter half of 2018."
Nusz said Oasis is now "strategically positioned" in two of the best unconventional oil positions in the United States, but he noted that the company is prepared to sell off some of its Williston Basin holdings in the northern Plains. "In 2018, we anticipate approximately $500 million of cash proceeds from noncore Williston assets that are attractive, high-return properties but are at the end of our development schedule," he said. "This acquisition is highly accretive to a number of metrics, and the new asset fits very nicely with our oil-weighted Williston assets, our vertical integration strategy and our deep experience operating in full-field development mode."
Oasis, Nusz said, will not change its existing 2018 plans to operate five rigs in the Williston Basin.
Analysts reacted negatively to the deal, citing the price tag, and investors fled Oasis, with the stock trading down 15%, to $8.52, at noon ET on Dec. 12.
"While core inventory adds help mitigate one of the biggest concerns around the pre-deal story, we think the market may struggle initially with the deal," the energy investment bank Tudor Pickering Holt & Co. said Dec. 12. The firm estimated the deal to cost about $40,000 per acre, which it deemed costly. "The deal price is above the high end of comparable transactions and … entry into a new basin presents potential execution risk."
Williams Capital Group's Gabriele Sorbara also found issues with the deal, particularly with the price and potential stock dilution. "We believe the transaction provides [Oasis] with a foothold in a Delaware Basin sweet spot; although, investors may be disappointed at the premium valuation and significant dilution," he said. "We reaffirm our buy rating and $13 [price target]."
