Friday, June 17, 2011

Laredo Petroleum grabs Permian focused Broad Oak Energy for $1 billion

Laredo Petroleum LLC has agreed to acquire Broad Oak Energy Inc, whereby Broad Oak will become a wholly-owned subsidiary of Laredo in exchange for aggregate consideration of approximately $1 billion. This is the biggest deal in the Permian Basin so far in 2011. This merger will make the combined company a leading player in the Permian Wolfberry oil play alongside Laredo's well established presence in the liquids-rich Granite Wash play.
Is the combined company planning for an IPO?
Both Laredo and Broad Oak are privately held companies formed in partnership with their management teams by affiliates of Warburg Pincus LLC. Through this merger, is there an IPO coming up from Laredo's side??

Broad Oak Energy Inc is a privately held oil and gas exploration and production company with a particular focus on the Permian Basin of West Texas. Broad Oak has assembled approximately 65,000 acres in the Wolfberry play of the Midland Basin. Assets include both infill and extension drilling prospects targeting a 3000 ft. proven producing interval that comprise Upper and Lower Spraberry, Dean and Wolfcamp reservoirs. Broad Oak has drilled over 200 wells and plans to drill 120 wells during the second half of 2010. The following map shows the operated producing assets of Broad Oak and Laredo Petroleum.

The following is the gross production profile of  Broad Oak operated assets.

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Summary of Permian Basin deal activity in the last 5 years

Deals by key operators in the Permian Basin

Note: The graph is interactive

Here are the significant Permian Basin deals of 2010 where the $/flowing barrel equivalent was around $100,000.
-- Apache acquires BP assets in Permian Basin for $3.1B
-- Concho Resources and Apache acquire assets of Marbob Energy for $1.65B
-- SandRidge Energy acquires Arena Resources for $1.3B
-- Oxy acquires Yates Drilling Co for $1.1B

Comparison of the deal activity by US sub-regions 
Note: The graph is interactive

The Permian Basin received the highest production multiples, $80,000-$110,000 per flowing barrel equivalent. The metrics reflect the premium buyers are willing to pay for oil reserves; future drilling opportunities, behind pipe potential and reserve quality.
The first 5-month results of 2011 show the total value of Permian Basin deals to be $2.3 billion with an average production metrics of ~90,000/daily BOE. There are a few Permian Basin packages put up for sale by Element Petroleum (brokered by BMO Capital), Piedra Resources (brokered by RBC Capital) and Parallel Petroleum (brokered by Scotia Waterous). These packages, being mandated by major advisors, are to make huge money to the Permian Basin for this year.

Source Documents

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