Rosetta Resources Inc. (ROSE), the oil and natural gas producer spun off from Calpine Corp. (CPN), agreed to buy 53,306 net acres in West Texas from Comstock Resources Inc. (CRK) for $768 million, marking its entrance into the Permian Basin.
The cash acquisition includes an area that may hold the equivalent of 145 million barrels of oil and currently produces about 3,300 barrels a day, Houston-based Rosetta said in a statement today. Comstock, based in Frisco, Texas, will use proceeds to reduce debt and double drilling rigs in the Eagle Ford shale formation of South Texas this year.
Permian Basin production rose 12 percent in the five years ending in 2011 as oil drillers used technology developed for extracting gas from dense shale rock, according to the Railroad Commission of Texas. Drilling permits issued for the region have more than doubled since 2009, according to data compiled by Bloomberg Industries.
“This transaction provides entry into the prolific Permian Basin with both existing production and strong growth potential in proven delineated areas as well as prospective exploration targets on undeveloped acreage,” Jim Craddock, chairman and chief executive officer of Houston-based Rosetta, said in today’s statement.
Comstock gained 13 percent to $18 at the close in New York, the biggest increase since December 2011. Rosetta fell 2 cents to $49.98.
“Comstock acquired this acreage in December 2011 for just $333 million, providing a very impressive return in just 15 months,” Daniel Katzenberg, a New York-based analyst for Oppenheimer & Co. wrote today in a note to clients. “This announcement significantly improves its balance sheet and financial flexibility.”
Oppenheimer rates Comstock at outperform, equivalent to a buy.
Current output from the acreage is more than 73 percent crude, Rosetta said. Oil, which sells at a premium to gas in North American markets, accounted for 26 percent of Rosetta’s 2012 production, up from 4.7 percent three years earlier, according to data compiled by Bloomberg.
Rosetta has $700 million of committed financing for the deal.
Comstock will boost spending on Eagle Ford drilling to $312 million this year, increasing the number of its drilling rigs in south Texas to six from three.
The transaction has a Jan. 1 effective date and is expected to close about May 15, the companies said. RBC Richardson Barr advised Rosetta and Evercore Partners Inc. (EVR) advised Comstock on the transaction.
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