SM Energy (SM +1.5%) surged to a 52-week high at the open before pulling back following news of its purchase of 35.7K acres in the Midland Basin in west Texas for $1.1B in cash and 13.4M shares valued at ~$500M.
SM expects to use the proceeds from a $785M sale of property and other assets in the Williston Basin to Oasis Petroleum, also announced today, to pay for the bulk of its cash outlay for the deal.
“Our Permian growth rate will be huge, higher than our more highly valued competitors,” SM CEO and President Jay Ottoson says without naming the competitors, but the company’s slide presentation lists Diamondback Energy (FANG -0.5%), Callon Petroleum (CPE -0.1%), Parsley Energy (PE -0.5%) and RSP Permian (RSPP -1.1%) as its top peers in the area.
CapitalOne upgrades SM to Overweight from Equal Weight with a $50 price target, lifted from $46, as it estimates SM paid ~$42K/acre for the acreage when backing out 2.4M boe/day production from the total $1.6B purchase price.
Williams Capital considers SM its top pick in the sector, saying the deal gives it "the scale to command an improved valuation and trade more like a Permian Basin company, especially when considering its execution of selling non-core assets."
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