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Laredo (LPI) Announces Acquisition of Sabalo Energy Assets

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Laredo Petroleum (LPI - Free Report) enters an agreement to purchase the exploration and production assets of Sabalo Energy LLC and a non-operating partner for nearly $715 million.

The transaction involves $625 million in cash and 2.5 million shares of Laredo common equity shares, subject to customary closing price adjustments.

Sabalo Energy is a portfolio company of EnCap Investments, which is a private equity firm in the United States, specializing in the energy industry. Notably, Sabalo Energy invests in the energy sector through exploration, development and production.

The acquisition comprises 21,000 contiguous net acres, which offsets Laredo's existing Howard County leasehold with 120 operated oil-weighted locations and 150 non-operated locations. The assets currently have a low-decline production capacity of 14,500 barrels of oil equivalent per day, with an estimated next 12-month oil decline of 35%. Notably, proved developed producing (“PDP”) reserves are estimated at 30 thousand barrels of oil equivalent.

Further, Laredo decided to divest 37.5% of its operating PDP reserves in Reagan and Glasscock counties to an affiliate of Sixth Street Partners LLC.  Laredo will receive $405 million and extra potential cash flow-based earn-out payments for the next six years. Importantly, the divestiture does not include the Howard and Western Glasscock acreage obtained in late 2019.

Following the closure of the deals, expected by Jul 1, 2021, the company will be able to generate significant free cash flow and reduce its debt burden. It will have more than 30,000 high-yielding contiguous net acres in Howard County and a near-term pathway to increase its oil production cut from 30% to more than 50%.

Notably, oil and gas mergers and acquisitions have had a record start this year as it could be a way out for many facing the economic fallout of coronavirus. Recently, the upstream sector experienced a flurry of deal-making activities, including Bonanza Creek Energy’s merger with Extraction Oil & Gas Inc. and natural gas producer EQT Corporation’s (EQT - Free Report) acquisition of Alta Resources.

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