Energy Prospectus

From Oil & Gas 360 (EnerCom)

Parsley Energy, Inc. (PE) announced on May 23, 2016, that the company has reached an agreement to acquire mineral rights under approximately 30,000 acres consisting of Parsley leasehold and other adjacent properties in Pecos and Reeves Counties, Texas, in the Southern Delaware Basin for $280.5 million in cash. The proposed transaction is scheduled to close by July 14, 2016.

Parsley also announced the purchase of additional working interests in its leasehold in Pecos and Reeves Counties totaling 885 net acres for $9.0 million in cash. This transaction closed on May 10, 2016.

Acquisition Highlights

Mineral Rights Acquisition
Acquired mineral rights in 29,813 acres (hereafter “mineral acreage”) with an average royalty interest of 17.5%.
Mineral rights boost net revenue interest (“NRI”) on approximately 186 gross/net horizontal drilling locations in the upper Wolfcamp interval, assuming one flow unit and 660′ between-well spacing. The company is assessing the potential for additional flow units in the Wolfcamp complex and the Bone Spring interval on acreage associated with acquired mineral rights.
The average NRI on horizontal drilling locations associated with acquired mineral rights increases from 75% to 92.5%.
Estimated net current production associated with acquired mineral rights is approximately 280 barrels of oil equivalent per day.
82% of mineral acreage represents Parsley leasehold, with the balance leased and operated by other operators.
Parsley also acquired surface rights on approximately 80% of mineral acreage, eliminating compensation for surface damages and water procurement, among other costs, and also facilitating optimal well and facility placement.
Consistent with the company’s previously announced capital plan, Parsley expects to complete 5-7 wells in the Southern Delaware Basin this year. Of these, the Company expects 3-5 to be completed on the acquired mineral acreage.

Working Interest Acquisition
Through a separate transaction that closed on May 10, 2016, Parsley acquired additional working interests in its Southern Delaware leasehold in Pecos and Reeves Counties.
All of the incremental working interests are associated with mineral acreage, bringing Parsley’s working interest to 100% and NRI to 87.5% in the affected properties.
Assuming just one flow unit in the upper Wolfcamp target interval, the acquired working interests translate to an additional 10 net horizontal drilling locations with an average lateral length of 7,250′.

Financing

Parsley Energy paid a total of $289.5 million between the two acquisitions, which will be financed through senior unsecured notes and an equity offering. Concurrently with today’s acquisition announcement, Parsley announced the company intends to issue eight million shares of common equity (and an additional 1.2 million shares in underwriter allotment). Parsley has yet to announce pricing for the offering, but expectations from EnerCom Analytics are the proceeds will be in the neighborhood of $220 million.

The company also announced plans to offer $200 million in senior unsecured notes due 2024. Specifics on rates have yet to be announced.

Parsley said it intends to use the proceeds from these offerings, expected to be around $420 million to pay for the acquisition, capital expenditures, future acquisitions, and general corporate purposes.

Parsley Energy's (PE) price target was increased to $29 from $28 at Keybanc on Tuesday morning.

The firm has an "overweight" rating on the Austin, TX-based oil and natural gas company.

"PE is enhancing its Delaware Basin asset by purchasing a 17.5% royalty interest under a significant portion of its acreage, which boosts the Delaware IRRs above that of its core Midland properties, no longer leaving investors to question if the asset can compete for capital with the Midland Basin," the firm wrote in a note.

Following the acquisition, Keybanc anticipates that the Delaware Basin will be a focal point for the company.

Additionally, the royalty ownership should enhance capital efficiency and the overall returns profile of the company going forward, the firm noted.

AUSTIN, Texas, May 23, 2016 /PRNewswire/ -- Parsley Energy, Inc. (PE) ("Parsley Energy" or the "Company") today announced that it has priced an underwritten, upsized public offering of 8,250,000 shares of Class A common stock for total gross proceeds (before underwriters' fees and estimated expenses) of approximately $203.0 million (the "Equity Offering"). The 8,250,000 share offering represents a 250,000 share upsize to the originally proposed 8,000,000 share offering. The underwriters have an option for 30 days to purchase up to an additional 1,237,500 shares of Class A common stock from the Company. The Equity Offering is expected to close on May 27, 2016, subject to customary closing conditions.

Concurrently with the Equity Offering, Parsley Energy, LLC and Parsley Finance Corp., the Company's consolidated subsidiaries, intend to offer to qualified institutional buyers and non-U.S. persons outside of the U.S., in an offering exempt from registration under the Securities Act of 1933, as amended, $200.0 million aggregate principal amount of senior notes due 2024 (the "Concurrent Notes Offering"). The Company will not guarantee the senior notes. The Equity Offering is not conditioned on the consummation of the Concurrent Notes Offering, and the Concurrent Notes Offering is not conditioned on the consummation of the Equity Offering.

Together with a portion of the net proceeds from the Concurrent Notes Offering, the Company intends to use a portion of the net proceeds of the Equity Offering to fund the aggregate purchase price for the acquisitions of mineral interests (and associated surface rights) and certain working interests in Pecos and Reeves Counties, Texas (the "Acquisitions"), and any remaining net proceeds will be used to fund a portion of the Company's capital program and for general corporate purposes, including potential future acquisitions. The Equity Offering is not conditioned on the consummation of the Acquisitions.

In that they had a lot of liquidity already, it appears that they are well poised to acquire more acreage or RIs.

My updated forecast model for Parsley has been posted to the EPG website. My valuation increases $1.00/share to $29.50.

PE and RSPP look very good to me. They look a lot like FANG did a year ago.

Was the valuation increase based solely on the acquired assets?

Thus a company can make an acquisition, issue bonds and stock to pay for it and have their valuation raised?

Increased production going forward as a result of increased NRI + I think it deserves a higher multiple. I really like this company.