RSP Permian to buy Silver Hill companies for $2.4 billion

Oct. 14, 2016
RSP Permian Inc. has agreed to acquire fellow Dallas-based firms Silver Hill Energy Partners LLC and Silver Hill E&P II LLC for $2.4 billion in moves that will expand its position in the Permian Delaware basin.

RSP Permian Inc. has agreed to acquire fellow Dallas-based firms Silver Hill Energy Partners LLC and Silver Hill E&P II LLC for $2.4 billion in moves that will expand its position in the Permian Delaware basin.

The two privately held Silver Hill entities are controlled by affiliates of private equity firms Kayne Anderson Capital Advisors LP and Ridgemont Equity Partners. The entities together own 68,000 gross (41,000 net) acres in northeast Loving and northwest Winkler counties in Texas, with current net production of 15,000 boe/d—69% oil and 86% liquids—from 58 producing wells (49 horizontal wells) and 3,200 gross (1,950 net) total undeveloped locations.

RSP Permian says the acquired acreage lies “in the thickest, deepest part of the Delaware basin, which is significantly overpressured,” featuring a “deep inventory of attractive horizontal drilling locations across multiple horizontal stacked pay zones, including the Wolfcamp B, upper and lower Wolfcamp A, third Bone Spring, second Bone Spring, Avalon, and Brushy Canyon.”

The firm says EURs of 1 million boe are common across the position, which includes 3,200 gross (1,950 net) locations with average lateral length of 6,300 ft. More than 80% of the acreage is operated with an average working interest of 83%. Offset operators include EOG Resources Inc., Anadarko Petroleum Corp., Royal Dutch Shell PLC, Matador Resources Co., and Devon Energy Corp.

RSP Permian plans to add a third operated horizontal rig during second-quarter 2017 and a fourth in fourth-quarter 2017 on its newly acquired Delaware basin properties. The firm also expects to add a fourth operated horizontal rig on its Midland basin properties during second-quarter 2017, bringing the company total to 8 horizontal rigs working by yearend 2017.

Lure of Permian acreage

“The returns on Silver Hill’s horizontal wells compare favorably with our Midland basin assets and generally rank in the top quartile of our drilling inventory,” commented Steve Gray, RSP Permian chief executive officer, upon the deal’s announcement.

The firm last year expanded its Midland basin acreage in two deals, one including 5,704 net surface acres or 27,287 net effective horizontal acres from multiple undisclosed sellers for $274 million, and the other with 4,100 net surface acres and 15,000 net effective horizontal acres from Wolfberry Partners Resources LLC for $137 million in cash.

RSP Permian now anticipates a preliminary 2017 drilling and completion budget of $520-560 million, and a total capital expenditure budget, including infrastructure and workovers, of $570-630 million. Companywide production in 2017 is estimated at 52,000-56,000 boe/d, of which 72-74% will be oil.

Both Silver Hill acquisitions are effective Nov. 1. The Silver Hill Energy Partners deal is expected to close in the fourth quarter with Silver Hill receiving $604 million in cash and 15 million RSP shares. The deal for Silver Hill E&P II LLC is expected to close in first-quarter 2017 with Silver Hill receiving $646 million in cash and 16 million RSP shares.

Reuters in August reported that Silver Hill was up for sale, and The Wall Street Journal earlier this month said that fellow Permian operator Diamondback Energy Inc. was nearing a deal for the firms. Travis Stice, chief executive officer of Diamondback, said on Oct. 10, “As has been rumored, we were engaged in discussions involving an acquisition but are not actively pursuing further negotiations at this time.”

A number of deals have taken place over the past year for Delaware basin acreage, with heavy involvement from private equity firms. Just last week, Denver-based Resolute Energy Corp. said it has agreed to acquire properties in Reeves County, Tex., from Firewheel Energy LLC, a portfolio company of Houston private equity firm EnCap Investments LP, for $135 million (OGJ Online, Oct. 5, 2016).

Information and analysis provider IHS Markit last week noted that a handful of dominant operators in the Delaware basin’s established subplays are “delivering remarkable profitability” at current crude oil prices (OGJ Online, Oct. 7, 2016).

Contact Matt Zborowski at [email protected].