Things have been moving strong for Oasis Petroleum Inc. (NYSE:OAS) lately. Earlier in October, the management at the firm reported few different steps that they think will help the organization fare better in the long run and increase shareholder value.
On October 18, 2016, Oasis reported that it would be acquiring up some properties in the Williston Basin from a firm named SM Energy Company (NYSE:SM) in an agreement worth $785 million. If the company is correct about the proposed deal, the assets involved are projected to have 50.2 million barrels of oil equivalent of proved reserves. Of this property, it’s projected that 77% of these reserves are oil.
These assets, which sports 226 gross drilling locations and represent 55,000 net acres are scheduled to result in considerable amount of energy for the firm moving forward. Following management’s estimates, it should be resulting in nearly 12,400 boe per day in 4Q2016.
In order to close this deal, Oasis management decided, initially, to release 40 million shares and additional 6 million through underwriters buying of stock. However, the company increased the offering to 48 million shares and an underwriter’s alternative of 7.2 million. Without discounting in underwriter costs, the firm can record net proceeds of nearly $596.16 million.
While this can alleviate issues pertaining increased debt for the firm, there are some concerns. In case of the underwriters going for exercise of shares, the shareholders of Oasis equity prior to the offering will be diluted by nearly 23.4%. It indicates that if the company recovers moving forward, the acquisition price may not be worth it. Also, some debt will be required for this acquisition deal and, as was noted recently, Oasis outstanding debt increased recently.
As of September end, the firm long-term debt was $2.248 billion compared to the $2.127 billion recorded at the end of 2Q2016. A segment where Oasis recorded the improvement was under its credit facility, the firm raising its borrowings to $195 million in 3Q2016 from $35 million in the previous quarter.
Based on the report released, it appears as though Oasis management is being innovative right now. It requires some time possibly until next year to realize the full impact of proposed acquisition.