Midstates Petroleum Co. agreed to buy producing properties as well as developed and undeveloped acreage in the Anadarko Basin in Texas and Oklahoma for $620 million in cash in a deal that expands the oil producer's resource potential and footprint.
Shares tumbled 5% to $7.02 in recent trading. The stock has dropped 7.8% in the past three months.
Midstates will buy the assets from Panther Energy LLC, Red Willow Mid-Continent LLC and LINN Energy Holdings LLC.
Midstates Chief Executive John Crum noted the deal will have an "immediate positive impact" on the company, while also offering "significant growth opportunities." He added the acquisition strengthens and diversifies Midstates' investment portfolio and lowers its overall risk profile.
"Adding this new third focus area provides Midstates the opportunity to build upon our operational strengths and leverage our presence in the Mid-Continent region that we established last year in Tulsa after completing our Mississippian Lime acquisition," he said.
The transaction will be effective April 1 and is expected to close May 31.
The deal adds about 36.4 million barrels of oil equivalent proved reserves that are 45% oil and 21% natural gas liquids, of which 34% are proved developed producing. It increases net current daily production by about 8,000 Boe per day and enhances drilling inventory with more than 700 repeatable horizontal drilling opportunities.
The transaction also expands Midstates' acreage position with about 140,000 net acres with multiple objectives and adds roughly 280 gross producing wells that are more than 80% operated.
Midstates expects the deal to immediately add to cash flow per share in 2013, as well as earnings before interest, taxes, depreciation and amortization.
Separately Thursday, Moody's Investors Service lowered its outlook on Midstates to stable from positive as a result of the deal. The ratings firm--which affirmed Midstates Petroleum's B3 rating, leaving it six levels into junk territory--said the increase in debt to finance the acquisition will roughly double Midstates' outstanding debt levels and delay the deleveraging of the company's balance sheet.
Midstates uses modern drilling techniques to tap already discovered oil and gas fields. The company was founded in 1993 to focus on oilfields in central Louisiana that form part of a geologic trend that stretches from south Texas to Mississippi. Last April, Midstates' initial public offering of 24 million shares priced below the expected range.
In August, Midstates agreed to buy producing properties and acreage in the Mississippian Lime oil play from private exploration and production company Eagle Energy Production LLC for $650 million in cash and stock.
Copyright (c) 2012 Dow Jones & Company, Inc.
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