- The Permian acquisition, while not inexpensive, improves the stock's risk/reward profile
- Divestitures will streamline the portfolio. The loss of the resource base will be compensated by the stacked-pay upside in the Permian
- Growth profile is unchanged in the near term and is more sustainable in the longer term.
The acquired properties are of excellent quality but come at a high price, in-line with other comparable transaction in this specific area. Including the contingent payment, which I value for illustration at ~$75 million, the implied valuation is $33,000 per undeveloped acre.
My estimate is substantially higher than the $22,300 per acre metric provided by the company in its presentation (the company's estimate appears to exclude the contingent payment and is based on a somewhat arbitrary multiple of flowing production).This is a great article to archive to see how one values the price paid for oil-producing assets.