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Analysts say Glasscock County acquisition helps 'reinvent' Laredo Petroleum

Laredo Petroleum Inc.'s $65 million bolt-on acquisition of acreage in Glasscock County, Texas, may seem like a small deal, but analysts believe that it could be an important one for the small independent.

The acquisition of 4,475 net contiguous acres from an unnamed seller was announced Dec. 9. Analysts reviewing the deal said the price had an acreage valuation between $7,800 and $8,300 per acre. Current production on the acreage is 1,400 barrels of oil equivalent per day, with 55% of that amount being oil. The acquired acreage is west of Laredo's existing Glasscock County position and is believed to have a stronger liquids mix overall.

"[Laredo] estimates the acreage contains 45 (35 net) remaining gross locations (1,320' lateral spacing) across the Lower Spraberry and Upper/Middle Wolfcamp. The company plans to commence drilling on the acquired acreage in 2020/2021 and expects to begin full-field development following completion of the Howard County [Texas] development plan," Raymond James said in a Dec. 10 update.

In its review of the acquisition, Siebert Williams Shank & Co. said the deal continues Laredo's efforts to improve its asset base, which will increase free cash flow and improve capital efficiencies.

"We view the bolt-on acquisition as an incremental positive that further helps to reinvent the [Laredo] story and shift its oil production and cash flow profile upward," Managing Director Gabriele Sorbara said. "[The deal is] the continuation of a positive step change."