Midstates Petroleum's CEO Hosts The Acquisition of Oil-Weighted Properties Conference (Transcript)

| About: Midstates Petroleum (MPO)

Midstates Petroleum (NYSE:MPO)

Acquisition of Oil-Weighted Properties Conference Call

April 4, 2013 9:30 a.m. ET

Executives

Al Petrie - IR

John Crum - President, CEO & Chairman

Tom Mitchell - VP & CFO

Curtis Newstrom - Vice President, New Ventures

Analysts

Neal Dingmann - SunTrust Robinson Humphrey

Ron Mills - Johnson Rice

John Herrlin - Societe Generale

Jeb Bachmann - Howard Weil

Drew Venker - Morgan Stanley

Brian Lively - Tudor, Pickering, Holt

Brian Singer - Goldman Sachs

Stephen Shepherd - Simmons & Company

Kyle Rhodes - RBC Capital Markets

Sean Sneeden - Oppenheimer

Operator

Good morning. My name is [Dushant] and I will be your conference operator today. At this time, I would like to welcome everyone to the Midstates Petroleum conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions) This call will be available for replay beginning at 2.30 pm eastern standard time today through 11:59 pm eastern standard time on April 17, 2013. The conference ID number for the replay is 32357875. Again the conference ID number for the replay is 32357875. The number to dial for the replay is 855-859-2056 or 404-537-3406.

I would now like to turn the call over to Mr. Petrie, Investor Relations Coordinator. You may begin.

Al Petrie

Thank you, Dushanta. Good morning everyone and welcome to Midstates Petroleum’s conference call to discuss our acquisition of Anadarko basin assets from Panther. Joining me today as speakers on our call are John Crum, chairman and president and CEO and Tom Mitchell, our executive vice president , CFO. John will begin today's call with an overview of the acquisition and Tom will follow with the financial terms and financing of the transaction and a preliminary look at the impact on the company’s 2013 outlook. John will then wrap up with some closing comments. A slide deck was posted on our website this morning that will be referenced in this call.

Before we begin, let’s get the administrative details out of the way with our safe harbor statement. This conference call may contain forward-looking information and statements regarding Midstates. Any statements included in this conference call or in our press release that address activities, events or developments that Midstates expects, believes, plans, projects, estimates, will or may occur in the future are forward-looking statements. These include statements regarding reserve and production estimates, estimated timing of production restoration, oil and natural gas prices, the impact of derivative positions, production expense estimates, cash flow estimates, future financial performance, planned capital expenditures and other matters that are discussed in Midstates filings with the Securities Exchange Commission. These statements are based on current expectations and projections about future events and involve known and unknown risks, uncertainties and other factors that may cause actual results and performance to be materially different from any future results or performance expressed or implied by these forward looking statements. Please refer Midstates filings with the SEC and the 2012 Form 10-K that was filed in March.

I will now turn the call over to John for his comments.

John Crum

Thanks Al. Good morning everyone and thanks for joining us this morning to learn more about the exciting Anadarko basin acquisition we announced earlier today. The slides we posted on the web this morning covers the transaction and the properties in detail. But I’d like to highlight a few key points here.

You’ve heard us talk a number of times in the past about our intention to grow Midstates by adding new focused areas to diversify our portfolio. We are particularly pleased with the acquisition of the Panther Energy assets. It fits our model perfectly providing proven production, proven reserves and proven drilling locations. These properties provide attractive new oil-weighted investment opportunities in the new basin and add significant scope and scale to Midstates immediately.

The acquisition increases our proved reserves and production by over 50% from the fourth quarter 2012 levels while doubling our active well count. The deal also allows us to leverage our existing Mid-Continent presence established in Tulsa last fall for our Mississippian Lime activity. That operation is almost fully staffed with Houston transfers and new Tulsa hires supplementing the strong Eagle staff that joined us early this year. We hope to convince many of the Panther staff to join us as well over the next few months.

The transaction is for $620 million cash and Tom will talk more about how we plan to structure the financing of the acquisition. Using our projected deal terms, it is immediately accretive to cash flow per share as well as earnings, EBITDA, reserves and production per share. These Anadarko basin properties fit extremely well with our growth strategy. They’re well understood by the industry and have been derisked through Panther’s successful drilling program and have a significant amount of running room. Simply put, well results are predictable, repeatable and generate strong internal rates of return.

This acquisition provides us with a variety of investment opportunities in a number of different formations. The primary targets for our horizontal drilling program will be the Cleveland as well as Marmaton, Cottage Grove, and Tonkawa formations. In addition to these targets, Midstates is evaluating several other horizons that provide upside to this portfolio. The acreage we are acquiring is in the same region as you’ve recently seen Apache, Chesapeake and Unit delineating over the past few years with horizontal drilling. This acquisition once again increases our scale and critical mass and further diversifies our overall drilling risk profile as we did last year with the Eagle acquisition.

The team we’ve built at Midstates is more than prepared to assume control of these properties and execute an exciting ramp-up drilling program on the acreage. Between our Houston and Tulsa offices, we’re staffed with a full complement of highly qualified technical operating and financial staff and are ready to execute on our plans. The producing fields and undeveloped acreage are located primarily in North Texas and Northwest Oklahoma. The transaction includes 280 gross producing horizontal wells and net current production that recently averaged about 8000 barrels per day of which 47% is oil, 20% natural gas liquids and 33% natural gas. Working interest averaged 69% and net revenue interest averaged 55%.

With the addition of Panther’s 36.4 million barrels of proven reserves, Midstates pro forma reserves will continue to be very oily with 111.9 million barrels consisting of 48% oil, 20% natural gas liquids and 32% natural gas. The reserve life for these assets being acquired is about 12.5 years. We are acquiring about 140,000 net acres of which 102,000 are in Texas and 38,000 are in Oklahoma. We will operate over 80% of the properties, about 60% of the acreage is held by production which will allow us to proceed at a comfortable pace drilling both infill wells in the more proven areas and step-out wells to test outlying areas.

We have estimated the resource potential for these assets to be over 100 million barrels equivalent and have identified over 700 low-risk horizontal drilling opportunities that are based on 160-acre spacing. About a third of the locations are PUD. We believe there is potential for down-spacing and just as importantly, there is significant upside potential from drilling the deeper lower Pennsylvanian and Mississippian sections. This is primarily a de-risk conventional horizontal play that has multiple objectives ranging from 6000 to 8000 feet of vertical depth. The Cleveland and Marmaton are in the mature field development phase with significant horizontal inventory already identified. The Cottage Grove and Tonkawa have significant potential for field extension.

The wells drilled to date by Panther have averaged 6,000 to 8,000 feet of vertical depth with average laterals of 4000 to 4300 feet. They typically utilize 15 to 17 stages of frac stimulation. The well costs have recently averaged around $3 million. The type curves based on well results yield EURs of 150,000 to 200,000 barrels equivalent with 30% to 70% internal rates of return. These results translate into finding and development costs of $18 to $24 per BOE. Historic LOE cost for the new properties is about $7.25 per BOE, which is comparable to our current cost profile.

Panther currently employs three rigs in their drilling program. We plan to maintain that program until late summer when we ramp the activity up by doubling the rig count to six by year end. At this time we anticipate 3 to 4 rigs will be drilling for the Cleveland formations, two to three for the Marmaton, Cottage Grove, and Tonkawa. In total we currently plan to drill 40 to 45 wells in 2013 on the newly acquired acreage all of which will be horizontal. The properties have sufficient infrastructure to support further field development and water handling is not an issue as these wells have low water cuts.

I will come back at the end of the call with further comments but let’s move ahead with Tom giving you more details on the financial aspects of the transaction and what our new budget will look like for 2013.

Tom Mitchell

Thanks John. Good morning everyone. I’d like to begin my comments by adding my enthusiasm for the acquisition we announced today. It materially increases our critical mass, diversifies our portfolio and reduces our overall portfolio risk. This is another important step in transitioning our company from a single-play E&P company to a more balanced multi-play E&P with a growing reserve base and production base.

As indicated in the slide deck, our pro forma reserves will quadruple from year-end 2011. And our production this year at closing will be over triple what it was in 2011. That equates to a compound annual growth rate from 2010 to closing of 157% for reserve and 151% for production. This growth did not come just from acquisitions but also from the successful organic drilling program we’ve experienced. Our all-in finding and development costs, including drilling and acquisitions were about $20 per BOE to achieve that growth.

As John mentioned, this transaction is accretive to cash flow, earnings and a number of other financial metrics in 2012. By 2014 with the full year impact from the transaction we see very strong double-digit accretion versus our stand-alone case.

Let me now talk about the structure of our proposed financing of the acquisition. The terms of the transaction are simple, $620 million all-in cash. We have in place a commitment for bridge financing, if needed, from Morgan Stanley and SunTrust to cover the full $620 million purchase price. In addition, those two firms have committed to increase the borrowing base on our revolver from its current $285 million to $425 million at the closing of the deal.

We also anticipate raising $725 million to $750 million in capital that will both avoid our need to use the bridge financing and provide us with liquidity to fund our growing and development program to the end of 2014. To not put undue pressure on our leverage, we plan to do a portion of the financing with equity in the range of $100 million to $125 million depending on the equity market conditions. Our calculation of the accretion resulting from the acquisition fully takes into account that equity raise as well as the impact of the ultimate conversion of the Eagle acquisition preferred stock into common shares.

Post-closing our debt to EBITDA will peak around 3.6 times. Our projections have us bringing that down closer to 2.5 times EBITDA by the end of 2014 and have cash flow positive in 2015 with no additional financing. At this point, we are continuing to analyze the properties and we’ll likely refine our assumptions as we move through that process.

Having said that, I’d like to go ahead and provide you with a preliminary view on guidance in 2013 with this transaction. We’ll provide you an update on our annual guidance in our first-quarter conference call that will take place in early May. The estimated current production volumes from the assets totaled around 8000 per day with about 47% in oil and 20% in NGLs. We will include those volumes in our financial statements beginning in June and with seven months of production from Panther assets we’re estimating that our 2013 total company production, including those new volumes will average now between 24,000 to 26,000 BOE per day. We are assuming those new volumes at around 8000 per day beginning in June. The detailed components of each region’s production and the expected contribution are included in the guidance slide at the end of the slide deck as well as on the website.

As we mentioned in our conference call in early March, we were impacted by a snowstorm that took most of our Oklahoma properties offline for over a week. Later in March we experienced the second snowstorm that led us getting them back to full production. Before the storm we were well on track to be at the high-end of our guidance range of 16,300 to 17,300 BOE per day, but now it looks like we will be near the low end of that range because of the two storms.

The new annual production guidance for 2013 I mentioned earlier takes into account the reduced Q1 results because of those storms. As is always the case, we will continue to look at our capital budget throughout the year and reallocate capital properly across our new more diversified portfolio to projects that yield the highest returns and potential upside. Our new 2013 production guidance assumes a revised 2013 budget of $525 million to $575 million with about 45% allocated to the Miss Lime assets, 30% to Louisiana and 20% to our Anadarko basin assets. That excludes cap interest of $45 million to $48 million and around $25 million to $30 million of capitalized transaction expenses.

As we continue to indicate if our Wilcox horizontal program in Louisiana yields encouraging results from the wells currently underway and planned as follow-up wells we’ll allocate additional capital to that area. We’re confident that the new capital allocation will sufficiently expose us to the upside we believe Louisiana offers but at a measured pace ensuring a prudent approach as we continue to shift to more horizontal development.

We've previously given you guidance for differentials for our Louisiana and Miss Lime production and we expect the new Anadarko basin well production to have about $3.50 discount to WTI and expect our natural gas from the new assets to yield around $0.25 discount to Henry Hub.

As we mentioned in today's release, we've layered in additional oil hedges in 2013, 2014 and 2015. The full details of our program are on our website in the Investors section under the financial information portion as well as in the press release. We’ve essentially maxed out the amount of oil hedges we can place until the time the transaction closes. So for oil we currently have about 53% hedged for the remainder of ’13, 40% hedged in 2014 and 17% hedged in 2015 on a pro forma basis for the acquisition. We have not added any new gas or NGL hedges at this time.

Let me review some of our costs taking into account the Panther properties. We’re not changing any of our cost guidance for the first quarter since the transaction is not effective until June. I’ll give you our preliminary look at those costs for the full year of 2013. Assuming that effective date the cost structure of these new properties is relatively in line with what we were currently experiencing on a companywide basis. We expect LOE on the new assets to be around $7.25 per barrel. As a result, I’d assume our total company LOE for the full year 2013 to now be $7.00 to $7.50 per BOE, slightly higher than our prior guidance of $6 to $7 per BOE.

2013 severance and ad valorem tax should stay within our current guidance of 7% to 8% of revenue. Because we are operating these new assets out of our Tulsa office we established last year, the increase in absolute G&A will not be very material and on a per barrel basis will actually be lower. We will enter into a transaction services agreement with Panther and retain their staff for six months. We will take some time to look at the full complement of people we’ll need going forward to operate the new properties and then integrate them into our Tulsa operation. At this time I expect our G&A costs will rise about $1.2 million per month beginning in June, that will cover the TSAs and ultimately our ongoing level of G&A.

In summary, our full year 2013 G&A should be in the range of $49 million to $53 million. Additionally, there will be about $18 million of acquisition and transaction expenses. Again from a financing perspective, I am extremely happy we were able to bring in these assets and to add a significant transaction to our business that enhances both scope and scale and increases our base business stability all while improving our liquidity and without over extending our balance sheet.

I’ll now turn the call back over to John for his closing remarks.

John Crum

Thank you, Tom. In summary, this transaction quickly increases our scope and scale and provides a significant increase to our inventory of drilling locations. It offers excellent upside because the number of perspective formations across this acreage base. We are able to quickly assume control of the properties and accelerate drilling program because of the experienced technical team we've assembled in Tulsa and in Houston many of whom have already worked this basin.

As we said consistently, we are committed to building a multi-basin diversified portfolio of properties with a strong production base that allows us to allocate capital to the highest returning projects while maintaining a balance of risk and return. The low risk, predictable and repeatable nature of the new Anadarko basin assets together with the returns I mentioned make this a very attractive new play for us. We think it is an ideal complement to what we're doing in Wilcox and Mississippian Lime plays. Exceeding 100 million barrels of reserves and 25,000 barrels per day of daily production are a significant milestone for Midstates as they are big steps forward to achieving the critical mass and lowering our overall risk profile.

In closing, I hope I can -- you could tell that we’re really excited about this addition to our company and believe it is a sound strategic and economic fit. One that not only grows our size but more importantly increases value for our shareholders. Al, we can now take questions.

Al Petrie

Hey Dushanta, we’re ready to take questions now.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Neal Dingmann with SunTrust.

Neal Dingmann - SunTrust Robinson Humphrey

Just a question on, first, John on this new acquisition, give us an idea -- I know, I was looking at some peers and I saw for them that I think they were saying of the total, about 17% was NGL, 38% nat gas. Trying to get an idea of what you all think the composition would be of this play just overall, and then kind of the follow-on to that, I know when some peers announced some results previously, I've seen anything from about 1,000 BOE per day kind of IPs to 1,400. Is that some rate that you're targeting or how should we figure that?

John Crum

No, I don’t think we’re going to be anywhere close to those numbers, Neal, it could happen but that would be extremely exceptional. Initial rates, we would expect here 350 to 400, we would -- I think I gave you the breakdown on the oil and liquids content that we've historically experienced and we expect to be pretty close to those numbers. We’re thinking maybe 47% oil, 20% NGLs.

Neal Dingmann - SunTrust Robinson Humphrey

And then on that, as far as, John, just wondering what you think about trying to length -- give me an idea – I guess when you kind of look at your type curve on this from an ops side, what’s your thoughts as far as laterals, will you kind of keep them -- it seems like you've got a pretty good idea of how many stages, what lateral length, is that going to be common going forward, or will you try to stretch that out a little bit?

John Crum

We’re obviously always looking for those things. Panther’s got a good solid team there though and they know what they are doing. So we’re going to try to learn as much from them as look for new opportunities to improve on that. They have consistently been able to bring their costs down and continuing to extend their laterals and add more frac stages, which is kind of the theme I think for most of us in these kinds of plays. So we will continue to do exactly the same things we’re trying to do in the Mississippian Lime which is look for other ways to reduce our costs most importantly, but get the higher rates by extending laterals and adding frac stages.

Neal Dingmann - SunTrust Robinson Humphrey

And then takeaway looks fine in the area, John?

John Crum

This is a -- this area of the Anadarko basin has been producing oil for hundred years and so a good takeaway in the area and we don't anticipate any real bottlenecks here.

Neal Dingmann - SunTrust Robinson Humphrey

And then very lastly, maybe question for you or Tom, just wondering now obviously with the returns, it looks like this could have pretty sizable returns, obviously depending on what the commodity price. Going forward how are you deciding on allocation between the three plays given that all three appear to have pretty solid return rates?

John Crum

I think we’re just going to do that on experience factor. We’re feeling pretty good about the numbers we've been able to add with our Mississippian Lime assets and we reported some of that at the first quarter and feel real good about where that's going. These assets seem to provide kind of similar numbers and then obviously we’re pretty excited about the potential to keep growing Louisiana with our horizontal programs. So we’re just going to kind of move that to the places that make the most sense of the time and try to de-lever our balance sheet as quick as possible.

Operator

Your next question comes from Ron Mills with Johnson Rice.

Ron Mills - Johnson Rice

Like Neal said, congratulations on this deal. A couple questions for you. You mentioned upside opportunity from both down-spacing and deeper formations. The 160 acres that you're assuming, is that as far down space as the existing 4,000 industry horizontals have gotten so far, or have others already started to test down-spacing, just trying to get a sense of that opportunity?

John Crum

Well, we’re running with kind of 160 acre spacing. I think most of us that are looking at this play certainly see a fifth well in the section as an upside. We carry that under our resource metrics. But it always depends on what the prices are, doesn’t it? So you can infill a lot more at a high-price than obviously you could if prices pulled back. So a little bit of help on gas price on this asset like many others would really make a difference on it. We’re still very tight. We’re not – we’ve got a lot of oil left in place after we drilled these four wells. So there is still upside on the infill.

Ron Mills - Johnson Rice

And then has there been much testing of the Pennsylvanian and Mississippian formations in this area by industry?

John Crum

Not a lot but obviously they have produced out of some of those formations in the past. We start moving in, in the deeper stuff into the gas prone areas, so nobody is real excited about doing much of that today.

Ron Mills - Johnson Rice

Perfect. And then you mentioned about 60% of the acreage so far is HBP-ed and I assume if you go from the 30 rigs to the six rigs by year-end, you don't have any lease expiration issues at that kind of activity level. But can you just at least address the lease expiration schedule and how your rig program meets that?

John Crum

Yeah, I think we feel real good that we will be able to maintain any acreage we want to maintain. So now this is a constant theme that we have to deal with across our entire acreage position and I think you can be assured that if we let acreage go it won’t be because we couldn't get it drilled, it’d be because we don't like it well enough to drill it.

Ron Mills - Johnson Rice

Perfect. And then the well economics or the type well economics that you provide, obviously that's spread across four plays. Is that more representative of one of the plays, or i.e. the Cleveland, or how should we look at that, especially since it looks like about little bit -- at least half of -- if not a little bit more than half of your activity is targeting the Cleveland. I'm just trying to get a sense as to how you look at each play.

John Crum

That’s correct. That would be really representative of the Cleveland. I think though that we're seeing, if you kind of take the others we’re seeing results that will compete with it pretty effectively. Obviously as we move into things like the Marmaton and Tonkawa wells which are little newer, there’s potential to get some bigger numbers out of those. The Cottage Grove is a pretty new play and we're really excited about where it could go because it's really on the first stages. So the average is going to be around that similar number to the Cleveland well.

Ron Mills - Johnson Rice

And then Tom, just so you don't feel left out, the timing of you looking to do the permanent financing, I know it sounds like the bridge is there as a just in case factor, the plan to put in permanent financing, I assume you hope to get that wrapped up between now and closing?

Tom Mitchell

We are working on it right now. We will get to it quickly here. We need to get the material in place that we need to go to market which appears to be pretty close. So we’ve got a plan in place to do that and we will be executing quickly.

Operator

Your next question comes from John Herrlin with Societe Generale.

John Herrlin - Societe Generale

Some of the background of this transaction, was it a data room situation, was this an area you were looking to expand to diversify your asset base?

John Crum

It was an area we’re looking to expand to, and indeed they have put together a data room, but we have gone into this with the pre-emptive (ph). So I think that's the best way to describe it. We’ve liked this area for a long time. Most of us have significant backgrounds in that area. And obviously it fits pretty nicely with what we just established in our Eagle acquisition.

John Herrlin - Societe Generale

On a pro forma basis, Eagle, this current transaction and your activity in Louisiana, if you look at your spending, how much will be geared towards HBP? I think the question was asked kind of that way before, but more specifically how much would be your normal development activity and how much would be HBP going forward?

John Crum

John, we may have to get back with you with the real number. But I would say it will be less than 20%, we would be going to proving up additional acreage and doing HBP activity.

John Herrlin - Societe Generale

And in terms of the newly-acquired properties, how abundant are oil-field services in the area? Is it a very competitive situation since there are a lot more companies drilling up there or is it a lot easier to get equipment than some of the other basins?

John Crum

John, I have not seen any reason to believe we’re going to have any constraints on getting equipment. I think you guys are hearing this from a lot of people, there's been a lot of new equipment come on, on the market over the last year or two. So some of the constraints we were dealing with in the past both on drilling rigs and frac equipment appears to be going away, and that's obviously helping us quite a bit.

Operator

Your next question comes from the line of Jeb Bachmann with Howard Weil.

Jeb Bachmann - Howard Weil

A few questions here. First, going back to I think the initial question from Neal on the IP rate, is that a 30-day rate that you are quoting, John?

John Crum

Yes, that’s a 30-day rate.

Jeb Bachmann - Howard Weil

And do you have 3-D seismic over these assets at this point?

John Crum

No, we don’t.

Jeb Bachmann - Howard Weil

Are there plans to do that to help with results, or what's your thought process there?

John Crum

This is especially Cleveland area, there is a lot of vertical activity in the area. This is fairly well delineated and so this is not the one of those plays where you’re taking advantage of the fact that new technology allows you to just more efficiently drain the reservoir. So we feel really good about the control we have in the area and can pretty well pick our locations anytime we need to.

Jeb Bachmann - Howard Weil

And so to that point, you don't believe that the vertical density, the amount of wells drilled there are going to impact the horizontal results going forward?

John Crum

We think that is a potential issue and so our geologists and engineers spend a significant amount of time picking those locations and kind of including that in their map.

Jeb Bachmann - Howard Weil

And then just looking at the owners here, did Lynn have pref rights here and did they turn those down in this deal?

John Crum

Lynn did not have pref rights.

Jeb Bachmann - Howard Weil

And then I guess looking at the corporate growth rate in ‘14 based on the program you've laid out for ‘13, any kind of thoughts on what that might look like?

John Crum

We’re going to give you some guidance at some point but I don’t know that we’re ready to lay that out yet, Jeb.

Jeb Bachmann - Howard Weil

Last one from me, any update on the 8K, S5 ,H1 horizontal well in West Gordon?

John Crum

Yeah, we do have a producing – it’s on production at about 200 barrels a day. The issue for us is, is it going to hang in there flat, or is it going to decline. So we will know quite a bit about that by the time we do our quarter call.

Operator

Your next question comes from the line of Drew Venker with Morgan Stanley.

Drew Venker - Morgan Stanley

Just curious where -- if you have an idea where you expect pro forma debt to cap to go?

John Crum

Like I mentioned in my comments, so we would peak around – 3.6 is what we’re thinking and then I think about these assets just like the Miss Lime assets is they cash flow strongly, so on a go forward basis that comes off pretty quickly back down to a little bit more reasonable where we feel comfortable.

Drew Venker - Morgan Stanley

So do you have a target level?

John Crum

Yeah, I think – we haven’t changed what our target is kind of on a longer term basis, we’d like to live between 2.5 to 3 times. And we get back down into that range within a reasonable period of time here.

Drew Venker - Morgan Stanley

I guess no, you don't have any plans at this point to do some portfolio rationalization?

John Crum

We obviously -- we always look at those kinds of things but right now we don't intend to.

Drew Venker - Morgan Stanley

And then in terms of the timing of this acquisition, you guys obviously also made pretty sizable Eagle acquisition. Is this point of more long-term strategy of acquiring more assets, I guess acquiring exploit versus more organic growth?

John Crum

Well, look we all want to do organic growth and we will continue to look for those opportunities but at the same time we have a business development group for a reason and that’s to continue to look at opportunities that come along and see if we can improve our overall portfolio with an acquisition that comes – becomes available.

Operator

Your next question comes from Brian Lively with Tudor, Pickering, Holt.

Brian Lively - Tudor, Pickering, Holt

Can you guys give the PV10 value of acquired proved reserves?

John Crum

Curtis, you got that number? It’s about $500 million.

Brian Lively - Tudor, Pickering, Holt

And that's before tax or after-tax?

John Crum

Before tax.

Brian Lively - Tudor, Pickering, Holt

And then, Tom, on the planned senior debt offering, can you bracket your expectations on coupon rate on that?

Tom Mitchell

I think the best way for you to look at it, Brian, would be to look at where our bonds are trading right now. So we went up and they have been pretty aggressively trading down below 9. So expectations would be that we’d be in that range.

Brian Lively - Tudor, Pickering, Holt

So that would be a little improvement over the last offering?

Tom Mitchell

It’d materially improve over the last offering, if you look at our current trading and the market remains pretty strong right now, so expectations would be that little better where we went out last time.

Brian Lively - Tudor, Pickering, Holt

And then on the Mississippian Lime, within the new CapEx band, have you adjusted the activity assumptions there at all, or is that still the same as was with your previous guidance?

John Crum

We are keeping – we’re likely to keep our Mississippian Lime activity at very similar levels. Obviously we’ve said all along we will continue to adjust as needed but our plan right now is to keep the same number of rigs running in Mississippian Lime. Probably just a little bit out of Louisiana as we add to this package. But this package of properties is going to generate its own EBITDA which would be helpful as well.

Brian Lively - Tudor, Pickering, Holt

And then you gave a rate on the West Gordon well of 200 barrels a day. Was that an equivalent rate or was that just oil?

John Crum

That’s just oil. I apologize, that’s a good point.

Brian Lively - Tudor, Pickering, Holt

And then last from me, John, when you think about this from a strategic standpoint, you guys have obviously been very transparent about wanting to grow the business over time. But as you think about the asset markets today, I know there's a lot of assets for sale out there. Can you kind of just walk through why this particular asset versus other opportunities you looked at and why now?

John Crum

Well, the now – why now answer is as I have said many times as acquisitions kind of come along when they come along now, when you have a perfectly timed, so when we see the right opportunity we like to take advantage of it as quickly as possible. As far as the asset market, I agree with you, it does look like it's getting a little better for someone who is looking at buying but one of the things we've pretty consistently said is we're really looking for an acquisition given our size that would give us proven production, proven reserves and proven drilling locations. We don't feel like we’re at that stage now where we can run out and buy 300,000 acres in the middle of nowhere and hope it works out. So this kind of fits exactly what we’re looking for, similar to Eagle given that solid production base and solid reserve base with more drilling locations.

So at some point in the future we would hopefully be in a place where we could develop a wonderful new play that was just ours but we don't think we’re there at.

Tom Mitchell

I might add to that, Brian that this was particularly good because we've already built out the Tulsa operation. So we were able to leverage off of that operation and yet add in a new area altogether. So you get the benefit of having that operation up and running and some of the synergies there and had we stepped into a totally new area, we might have been faced with that right now. So it worked very well from that perspective.

Brian Lively - Tudor, Pickering, Holt

That makes sense. If I may think about you all's perspective on incremental acquisitions, you were able to buy this asset at about 80% of proved value and then you get some undeveloped upside, some acreage upside for a very low price. Is that sort of how we should think about the business model and what you're looking for in terms of incremental acquisitions that you guys are looking at?

John Crum

Well, we do hope that – yeah, we’d be able to make acquisitions that are economic and I am not really sure what you’re saying there Brian, but we feel like we’re buying these reserves for about $17 a barrel what we think a fairly conservative view of what reserves are out there. So this is the kind of opportunity we are looking for, and we will continue to look for others.

Brian Lively - Tudor, Pickering, Holt

Yeah, I was just making a point that you said previously that you weren't interested at this point in going and just buying a bunch of acreage without production. This deal you were able to buy largely on just proved reserve value, and I was just thinking forward, saying future deals, is this more of how we should see it, versus just buying a property that has a bunch of acreage and a lot of resource potential but really no reserves with it?

John Crum

Yeah I think we certainly feel better buying this kind of asset, Brian. There is no question about it but I guess if we found the right opportunity in the future that that made some sense to us and we had team members on in that organization that understands the play well enough, then it’s going to allow us to take a little more risk.

Operator

Your next question comes from Brian Singer with Goldman Sachs.

Brian Singer - Goldman Sachs

Just wanted to follow-up on the point on capital prioritization and reprioritization. I think you mentioned earlier that the Mississippi Lime activity, you plan to keep flat relative your previous plans and then Wilcox perhaps moved down a bit. Can you add a little bit more color, particularly with regards to the Wilcox, if that is where there's a change, is that coming more on the vertical side or the horizontal side?

John Crum

Yeah I think in general we’re not talking about a significant shift, but we are going to have some kind of revised guidance numbers out there, Brian, on our website. So if you look on our website you’re going to see that we’re now hardly on that 45% on the Mississippi Lime, 30% in LA Louisiana for the year and 25% to these new Anadarko assets for the year.

Brian Singer - Goldman Sachs

Just looking at the production guidance, I think your old guidance midpoint, if we just add 8,000 barrels a day for seven months of that, we'd get to a little bit above I think the top end of what you're talking about here. Is the difference there some of the capital reprioritization and the delays that you mentioned earlier with regards to the first quarter carrying through? Or is there anything else you're seeing well results-wise that are in your other plays in Mississippi Lime and Louisiana that are coming in better or worse than expected?

John Crum

I think you’ve described it well. We are – we’ve told you we’re trying to be fairly conservative when we lay these things out. I guess that’s the best way to describe it.

Operator

Your next question comes from Stephen Shepherd with Simmons & Company.

Stephen Shepherd - Simmons & Company

All of my questions have been answered. Thank you for your disclosure. Much appreciate it.

Operator

Your next question comes from Kyle Rhodes with RBC.

Kyle Rhodes - RBC Capital Markets

Quick question, I am just wondering where you think you can get to by year-end ‘13 in the Anadarko basin, just with your 40 to 45 well program here?

John Crum

Are you talking about production rates?

Kyle Rhodes - RBC Capital Markets

Yeah, just kind of a year end exit rate, if you could give something like that?

John Crum

Let us work this a little bit more before we try to come out with anything like that. We’ve given you what we think the overall number for the year will be and we obviously want to work our numbers a little harder before we give any refinement on those numbers.

Kyle Rhodes - RBC Capital Markets

And then on the 700 locations, can you guys give us a breakdown on Cleveland versus Marmaton versus Cottage Grove, et cetera?

John Crum

Curtis, do you want to take that one?

Curtis Newstrom

Yeah, when you talk about future development before what we’ve got in the proved report and the bulk of it still ends up being mostly Cleveland development, a fair chunk is in the Cottage Grove and Marmaton and some of the areas that we haven't really talked about that are upside beyond that, some of that other formations make up the balance. But we will still continue to have a program that’s primarily focused on the Cleveland and Marmaton.

Kyle Rhodes - RBC Capital Markets

But they are assuming most of the PUDs are going to be Cleveland?

Curtis Newstrom

Cleveland, Marmaton, Cottage Grove, those are going to make the bulk but --

John Crum

Cleveland dominates this –

Curtis Newstrom

Right, it’s been the bulk of the activity to this point and it will continue to be a big part of the capital.

Operator

Your next question comes from Sean Sneeden with Oppenheimer.

Sean Sneeden - Oppenheimer

I was just kind of wondering, can you comment about what you're seeing on decline rates for the Panther assets or how should we think about that?

John Crum

We’re seeing kind of a base decline around 45%, I guess 41% well, that’s the number. These are horizontal wells, so you would expect initial rates to be pretty high in that kind of 75% range. And then we are typically on these assets using the factors around one.

Sean Sneeden - Oppenheimer

And kind of follow-up on some of the previous questions about future acquisition opportunities, now that you guys have three liquids-rich plays, can you just kind of weigh how you guys think about expanding into another different liquids-rich play versus just adding acreage in your existing plays?

John Crum

Well, I think I have consistently said perfect world, you start out one, buying more interest in the stuff you already own, so that's the easiest acquisition we can do because we’re already working the properties. The second one is the acreage next door to an area you like, and the third decision moving into a new area is a more significant decision. But we are not – it turns out everybody's noticed that oil is pretty good, so we’d obviously like to get earlier than we are even now. So if you could fine one that kind of fits that, that’d be perfect but like I say our competition’s noticed as well.

Operator

At this time, there are no further questions. So I will turn the call back over to Mr. Petrie.

Al Petrie

Okay. Thank you everyone for joining us and we will be happy to take any calls after we are finished.

John Crum

Yeah, thank you. I am going to head up to Tulsa to see the Panther group but Tom, and Steve and Curtis and Al, gathered all will be here to answer any questions you have. Thank you.

Operator

Thank you ladies and gentlemen, this does conclude today’s call. You may now disconnect.

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