Oasis Petroleum's (OAS) Management Presents on Delaware Basin Acquisition Conference (Transcript)

Oasis Petroleum, Inc. (NYSE:OAS)

Delaware Basin Acquisition Conference Call

December 11, 2017 09:15 ET

Executives

Michael Lou – EVP & CFO

Thomas Nusz – CEO

Taylor Reid – COO

Analysts

Neal Dingmann – SunTrust Robinson Humphrey

Brad Heffern – RBC Capital Markets

Ronald Mills – Johnson Rice & Co.

Gail Nicholson – KLR Group

Operator

Hello, and welcome to the Oasis Petroleum Investor Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I will now turn the call over to Michael Lou. Please go ahead sir.

Michael Lou

Thank you, Keith. Good evening everyone, this is Michael Lou. Today, we are excited to announce our entry into the Delaware Basin and provide a few operational updates. We’re delighted to have you on the call today. I’m joined today by Tommy Nusz and Taylor Reid, as well as other members of the team.

Please be advised that our remarks on both Oasis Petroleum and Oasis Midstream Partners, including the answers to your questions include statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently disclosed in our earnings release and conference call. Those risks include, among others, matters that we have described in our earnings release as well as in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K, and our Quarterly Reports on Form 10-Q and on our Oasis Midstream Partners Form S-1. We disclaim any obligation to update these forward-looking statements.

During this conference call, we may also make references to adjusted EBITDA, which is a non-GAAP financial measure. Reconciliations to adjusted EBITDA to the applicable GAAP measures can be found in our earnings release and on our website. Throughout this call we will reference to investor presentation about this transaction which is posted on our website this afternoon.

With that, I’ll turn the call over to Tommy.

Thomas Nusz

Thanks, Michael and good evening. I’ll start by directing you to Page 3; it’s an exciting day for Oasis and we’re pleased to update you on the acquisition of over 20,000 highly contiguous net acres in the heart of the Delaware Basin oil window.

This acquisition brings us 507 net core inventory locations which more than doubles our current core position with locations targeting four vertical formations with material upside from other formations that the seller and offset operators have already drilled and aleniated. Results from these wells are among the best in the basin driving at November production rate of 3,500 net BOEs per day, than an oil cut in line with the current Oasis Williston production at about 78%. Our purchase price of $946 million will be financed with a mix of stock issued in the sellers. The public equity offering and draws on our revolving credit facility.

In 2018 we anticipated approximately $500 million of cash proceeds from non-core Williston assets that are attractive high return properties that are at the end of our development schedule. This acquisition is highly accretive to a number of metrics and the new asset fits very nicely with our oil weighted Williston assets, our vertical integration strategy and our deep experience operating in full field development mode. We are now strategically positioned in the core of the two best oil basins in the United States.

On Page 4 you can further see the location of the asset in the Delaware and begin to understand that we’re picking up core of the core acreage similar to our core position in the Williston Basin. We expect wells to deliver returns of over 75% across the core of both, the Williston and the Delaware and this transaction extends our core inventory life for Oasis. Due to the strength of our team and our assets we have already hit our Williston 2017 production exit rate of over 72,000 BOEs per day for the month of November, and as I mentioned previously, the new asset brings production of approximately 3,500 BOEs per day.

We expect to continue the 2018 plan that we’ve been talking about in the Williston Basin and we’ll keep running one rig in the Delaware with the option that a second rig in the latter half of 2018.

On Slide 5, we have highlights of how this transaction builds on the Oasis strategy. The deal materially expands core inventory as the area has been successfully delineated by the seller and multiple offset operators I mentioned earlier but the potential for inventory upside based on our conservative booking of inventory. The purchase price is below or in-line with others in the region for having attractive full cycle returns to the strength of the asset and the compelling valuation. Our asset is primed for our development expertise as Oasis has successfully entered full field development in the Williston and has continued to perform at a high level that we expect to do so in the Delaware as well.

It is also extremely helpful that many members of our management team have extensive Permian experience. We can also leverage our unique strategy of vertical integration through our internal frac and Midstream business to further drive efficient development. The nature of this transaction add significant core inventory life to our Company while maintaining a strong balance sheet and liquidity allowing us to continue to be free cash flow positive on the upstream basis.

Page 6, our required asset is in the deepest, thickest and highest pressure part of the Delaware oil window where recently drilled wells are already outperforming offset operators 1.2 million barrel of oil equivalent type curves and the asset is highly contiguous with ample takeaway capacity infrastructure to facilitate for full field development. The acreage is largely undedicated for oil and gas gathering and is completely undedicated for water gathering providing organic midstream growth opportunities to the Company. Most of our wells are expected to be drilled with two-mile laterals and there are still room for optimization on completions.

Lastly, Oasis has extremely reasonable drilling requirements on the acreage and does not have to maintain a high rig count to chase HBP requirements.

With that, I’m going to turn it over to Taylor to describe the strength of this assets [ph].

Taylor Reid

Thanks, Tommy. I’ll now direct you to Page 7 of the presentation. We look at both our log and well results from this asset. You can see that we are in the best part of the Delaware.

We have identified four core target formations, the third bound spring through the Wolfcamp [ph] with six target intervals within them, an anticipated spacing program of 4 to 6 wells per section results in 34 wells per DSU in our core inventory including an additional 4 to 6 wells per target in, the Avalon through Bone Spring 2, the potential wells per DSU jumped to 56 plus wells. Keep in mind, that the per zones facing numbers could be higher. When compared to other operators in the region, our spacing assumptions are either conservative or right in line without people characterizing their inventory, highlighting the fact that there is a considerable upside in terms of well inventory.

Let’s now turn to Page 8; the combination of the assets location in the heart of the overpressure oil window in the Blocky Acreage allows for longer laterals. The combination has resulted in the outstanding well performance in this area and implies best-in-class wells among peer group going forward. The chart on the lower left side of the page highlights two key points about this asset. First, we are in oiliest part of the basin based on historical production of recent wells, and second, Forge has been drilling some of the longest laterals in the region which we expect to continue.

Now on Page 10; we offer more detail on well control in the area demonstrating that we are buying in asset that has been well delineated. Extensive drilling and completion activities in this area over the last year has really derisked this asset, especially when compared to other transactions in the area over the past few years. As a result, we have minimized downside risk while pulling the trigger on an asset that has continued upside that has not embedded into our acquisition price. We are really excited about Forge and offset operator well performance is shown on the slide. The strong well results across the column again demonstrates a considerable upside of what we are paying for the asset.

If you now focus on Page 10, you can see that the recent completions from this asset are performance leaders in the Delaware as depicted in the chart on the right hand side of the page. A remarkable feat of these wells is that they tend to flow for extended periods of time. For example, the Bighorn well, the first well drilled by the operator on these assets is still flowing after 18 months.

As you can see results have been great. Oasis will continue to optimize completion design on these outstanding wells. Keep in mind that Forge has completed just 9 wells of the 600 plus well inventory, so we’re in the early innings of optimization and performance enhancement opportunities on this asset. One example is profit loading; we’ve generally seen a correlation and increased pounds per foot in well performance outlining a path for additional upside and well performance on this asset.

Let’s now turn to Page 11; looking closer at some well results in the region, our wells are at the top of the peer set. On the right hand chart you can see that our wells are outperforming one of the closest offset operators, 1.2 million barrel of oil equivalent type curve and still doing so without artificial lift.

With that, I’ll now turn the call over to Michael.

Michael Lou

Thanks, Taylor. If you turn to Page 12, Oasis has earned a track record of strong execution in the Williston Basin as we developed a skillset that is highly transferable to the Delaware as well. We’ve driven extensive improvements in capital and operational efficiency over the past few years while we transition to fulfill development.

We’ve drilled 750 wells since 2010 with lateral links averaging about 10,000 feet across multiple zones. We continue to optimize operations through the use of zipper fracs, large pad developments while decreasing spud [ph] to rig release drilling times. Differentials continue to dramatically improve in the Williston with the fourth quarter average differential to WTI expected to be lower than a dollar per BOE. LOE continues to improve and we expect fourth quarter LOE to range between 7 and 7.50 per BOE.

On the next page, Page 13; you’ve seen a strived value through vertical integration with OWS and OMS. And that competency also provides future upside as we operate this asset during fulfill development. Vertical integration leads to costs savings and has greatly reduced our completion cost and our lease operating costs in the Williston since 2014. Our new acreage is largely undedicated for midstream services allowing the possibility of midstream build out through OMS in potential future return of capital to Oasis through dropdowns of ownership to OMP.

OWS has the possibility to build out a frac crew in the Delaware bringing top tier well completion efficiency to this asset. Either way we can bring supply chain management that manages to the new asset in advance of launching another crew in the Delaware.

On Page 14; this slide speaks to this continued strength of our Williston asset and the quality of our Oasis team. We’ve already achieved our 2017 exit rate in November with production averaging greater than 72,000 barrel of oil equivalent per day. Our 2018 Williston production exit rate of 83 MBoe per day is unchanged but total Oasis projected exit rate is now over 88 MBoe per day with 5 MBoe per day coming from the Delaware. We plan to achieve these targets by running 5 rigs in the Williston completing a 120 operated wells at our current well cost.

In the Delaware we would drill 16 to 20 wells in 2018 by running one rig initially with the option to add a second rig in the back half of the year. We plan on spending about $100 million in capital assuming 6 to 8 wells completed and a minimal outspend at $55 WTI due to EBITDA generated from production. Even with the acquisition we are expecting to be free cash flow positive for our total upstream business at $55 WTI.

On the final page, Page 15; in conclusion, I want to reiterate that Oasis has a premier collection of assets and a highly disciplined management team. We have further expanded our operational scale with assets focused in the Top Two U.S. oil basins. Our positions continue to be large and contiguous delivering high returns with low risk across various commodity prices and we see clear upside with near-term catalyst.

Our midstream segment continues to remain strong with the MOP giving the Company greater flexibility and liquidity; and we’ve got a team — a strong team that manages capital well, is returns focused and adds the financial and technical ability to deliver above market shareholder returns.

With that, I’ll turn the call back over to Keith to open the lines up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from Neal Dingmann with SunTrust.

Neal Dingmann

My first question is for you and Michael. I’m just little surprised, again — I do agree with you guys, I think there is acreage there but given the all in place, why run just one rig initially or for the early part of the year given the number of core locations and for running a Dcf kind of what you’re running at times zero to try to obviously recoup that cash off the door?

Thomas Nusz

Neal, as you’ve heard us talk before we try to approach things from one direction. This is a move into a new basin and we want to be diligent and prudent about that and for along with integration, to run out there and pickup another rig right away, we don’t think is the best idea. So we’re going to run one, our plan is to add a second, so we’ve got a run rate or two in the second half of the year; now that doesn’t mean that we don’t — in the first half of the year maybe picking one up for one or two lows but depending on how our integration activity is going but initial phase is that the integration of project and having a solid plan in place makes more sense to us than going out and picking up a bunch of rigs.

Michael Lou

One thing I’d add to that is, if you just look back at Will [ph] Basin for example, we did that acquisition in 2013, we had a similar approach and we took the time to do the testing, understand our productivity on the wells and with the — looks like it’s spacing and then get out for upfront, get all the infrastructure in place so that we can efficiently produce the asset.

Neal Dingmann

Just on the non-core, you talked about — you mentioned I think the release by $500 million potential sale, what area that might be?

Thomas Nusz

Yes, so there is couple of things there Neal to — it’s mainly a fairway acreage, you know, some of those blocks that are out net fairway position, as well as potentially some non-op production as well.

Neal Dingmann

Okay. And Tom does this mean now — because given that certainly core acres that you’re picking up, does this mean Allerden [ph] paying some of the — that the northern paying or some of these others you won’t necessarily go after as soon and I’m just trying to get a sense of your Bakken plan with 5 rigs, is that going to remain the same or will that change now a bit given having this other acreage?

Thomas Nusz

Yes, our Williston plan doesn’t change Neal, it’s still going to be the same; we’re running 5 rigs and we’ll stay on the same path that we have in there; and then, this is in addition too.

Operator

Thank you. And the next question comes from Drew Wanker [ph] with Morgan Stanley.

Unidentified Analyst

I wanted to follow-up on Neal’s question; I do definitely agree that the acreage looks like high quality stuff but curious as to why now because you guys have participated in M&A within Williston for quite some time and I guess until now had not found anything interesting or attractive enough to enter [indiscernible]. Does anything increment versus your prepared remarks, I would like to hear that.

Thomas Nusz

To find anything incremental as in outside of the basin? Outside of the low [ph]?

Unidentified Analyst

Tell me just incremental from your prepared remarks about why you would want to leave just Williston Basin as of now relative to from inceptions really not moving upto the Basin?

Thomas Nusz

You look at the growth that we’ve had in the Williston from our initial acquisition of 175,000 acres to expanding to the east side of the basin, when we IPOed in 2010 we had about 300,000 acres and since then we did the Rosy acquisition at the end of 2013 included Wild [ph] Basin painted woods and former view. And then last year you saw us still bolt-on with the SM position that was right in and around all of our consolidated blocks, made a lot of sense to us. And so we’ll continue to look for opportunities in the Williston, we view this though as a compliment to consolidation of core positions where we take some of that asset that’s out in the Fairway, that’s further out in the development plan, that we can enhance the value with through putting into somebody else’s hands and use that to continue to build core inventory that’s resilient to very low oil prices.

Hopefully we don’t see that like we see in over the last couple of years but if we do, we’ve got an opportunity set here in doubling our core inventory to really be resilient to low oil prices. And then, whether it’s low or high oil prices, you know, strive to have peer leading margins.

Unidentified Analyst

And overtime, you have a good sense of how many rigs you could run in this acreage before you run into infrastructure challenges or other logistical issues?

Taylor Reid

So Tommy said, we’re going to start out with one, picking up the second later next year. As you get into full field development you could run 5 to 6 rigs, something in that range and we’ll probably be executing on this asset, similar to what we do in Williston where you’ve got multiple rigs on a single space ménages [ph] to bring the cycle times down and so in doing that you could run, say 5 or 6 rigs or something in that range but that’s going to be stepped into that overtime.

Operator

And the next question comes from Brad Heffern with RBC Capital Markets.

Brad Heffern

I would wonder if you could delve into the services side of things a little bit more. Are you happy with the spec of the rig that you’re inheriting there? And then, I wasn’t really clear on whether you have a frac going right now or not, I know in ’18 you’re planning to complete a lot of your wells than you’re expecting to drill. So is there like a period of time there where you’re not having a crew and you’re building adhoc [ph] backlog?

Thomas Nusz

So first with respect to the drilling rigs, we’ll inherit a rig that — it’s got all the specs, current kind of high-spec rig that we would like to have; so we’re happy with that and we’ll keep that rig. With respect to the frac services, it ends up being back loaded just by nature of getting the stuff drilled and then getting a little bit of a backlog before we start completing. We’re going to — we don’t have enough frac activity, early time here to justify a frac crew by itself, so it will be kind of aggregating probably a few wells and then getting spot services on the frac side but we don’t think that will be a problem, it’s just going to take advanced planning and then overtime as we get enough — we pick up the activity more and get enough inventory, we’ll have the option to get a full-time frac crew and if that type can even consider, either bring him on rolling frac crews down or put another of service in this area.

Brad Heffern

And then, obviously this is a nice size acquisition but I’m sure people are immediately going to think is the large enough or are you’re done here. So, is there — are there bolt-on targets and you guys are thinking about or is this a big enough size to the attack for now?

Thomas Nusz

So there are some additional bolt-on opportunities, it just entered around this asset, not usual repowering but once that will allow us to continue to block up the position and add to this asset. So definitely interested on that front, as it gets to the sizes of the deal while it’s 20,000 acres, I mean relative to the large Williston position. Now as we all know here we’ve got a lot of stack page and so a bunch of inventory and we’re doubling our core inventory, we don’t have a need to go do a bunch more deals, we’re going to be focused on really executing on this asset, the right thing comes along, we’ll certainly look at it but not in a position where we need to really got to go do something else on top of it and really kind of core in up disposition.

Operator

And the next question comes from [indiscernible].

Unidentified Analyst

Can you talk about the overall mainstream CapEx requirements, the asset and any kind of outlook you gave on potentially capturing third party volumes with L&F [ph]?

Thomas Nusz

We’re not there yet on all of that so what we know is that the asset has no long-term marketing arrangements on the water side, fresh water or produce; and only has a little bit on the gas and oil side, so there is a lot of big infrastructure out in this area that you can attach to and we’re going to look at opportunities in what’s best for the asset. We certainly think OMS/LMP has a role to play but we don’t know exactly what that is yet, so we’ll continue to work that over the coming months and let you know as we get to more of it later.

Unidentified Analyst

I wanted to touch on Forge wells, you said you add in the presentation, and it looks like your wells are largely outperforming the peers using less intense completion technique. But you also mentioned a preference towards potentially increasing the popping loading there; so just trying to understand about how you’re thinking about the future completion in the Delaware?

Thomas Nusz

Yes, so that’s on Page 10 that you’re talking about and you can see on really 10 or 11 that the Forge wells have really outperformed the competitors and they are showing a large dataset there that you’re going to look at. Part of that we take the position in the basin, deep part of the basin, higher pressured, very oily — oiliest part already 5% of production in early time when these wells is all oil. And as you noted, the intensity on the fracs are less than what you’ve seen for some other operators, you can see that on the graph on Page 10. So what we’re looking at increase in the loads, it’s generally been correlation in a lot of these basins between proper loads increasing in CNURs and productivity go up. So [indiscernible] will look at and we’ll continue to work on optimizing the completions, keep in mind, this is the ninth well or they’ve done 9 wells so far with an inventory as we talk about of over 600 wells, it’s really early days in terms of the completion techniques being employed on this asset; so we’re super excited to continue to dig in and work with the Forge guys and try to really improve these well results.

Michael Lou

Keep in mind that I think it’s optimization is the key word here and just more sand isn’t necessarily the magic fix, you know, it’s what the sand volume, what’s the fluid volume and then how it’s efficiently placed; so the whole lateral science thing that we talked about in the Williston that we have a tremendous amount of experience there. So it will be a combination of evolve things as Taylor and the guys look to optimize these completions.

Unidentified Analyst

Can you give us a sense of where you are with the Williston assets and sales process? Is there a data room open; I’m trying to pin that down on a date but I’m just curious on if you can give any additional color on timing there?

Thomas Nusz

Yes, so — we actually have one project that’s in process but it’s relatively small, in the tens of millions, not hundreds of millions; and it will — it should close next week but as far as really ramping up on the remainder of it, we’ve done a little bit of work on it but still some work to do. So I would expect it to feather in over the course of the year, and it’s — when you look at the spread, if you go back and look at the fairway positions, it’s — from east side to west side. And so I think it’s unlikely, not out of the question but unlikely that you have a single buyer for big chunks of that, it’s probably going to be more targeted given some of the experience that we’ve had up there. So I would expect it to be spread throughout 2018 but I would probably wouldn’t expect anything in the first quarter.

Operator

And the next question comes from [indiscernible].

Unidentified Analyst

Some of my have been addressed. I guess one kind of big picture one, if you kind of step back and look out a few years, how do you guys envision Oasis in the Delaware Basin? Just trying to get a sense for kind of how big you plan to get? And how big of a component of the overall corporate profile you really see this being over a decent timeframe?

Thomas Nusz

What I would say is that if you looking for the roadmap, look at the last 10 years and it’s all in our presentation; I wouldn’t expect it to be widely different than what we did in the Williston. You kind of — you continue to evaluate things, you pick your spots, you hand around the hoop and it’s — it is much about timing and execution as it is about deals, but you can look at what we did in the Williston and it kind of provides you a map to how we think about things. Now that being said, when you start looking at 3,800 feet a section versus 300 feet of section, the — that looks — the footprint looks a little bit different; and it’s not what you’re seeing with some of the players in the Permian where — I mean, they’ve captured enough to where you start. I mean, having a lot of inventory is a good thing but if it’s out 60 or 70 years from now then it’s — you can’t pay a whole lot of money for it. So I think we’ll continue to look for opportunities to build on this and like I said, I would kind of look at the Williston as a road map.

Unidentified Analyst

And then I guess, I was curious as you highlight on the deck, being free cash flow positive in the Williston with a minimal deficit spend in the Delaware at 55; how are you treating interest expense in that and any other corporate overhead? I’m kind of trying to get to the aggregate I guess from those comments.

Taylor Reid

The interest in the G&A is included in the Williston side of it. I mean, it’s kind of our — got pre-standalone model if you will; there is some additional G&A that we’ll incur we think with the new asset but it’s pretty minimal and we associated that with the new asset.

Unidentified Analyst

And then, to an extent — I mean, as we think about [indiscernible] and minimal deficit spending in the Delaware, is that 20% outspend or I’m just trying to understand the percent of outspend.

Taylor Reid

Well, the D&C for the first year for ’18 will be about called around $100 million. We’ll have about $50 million in cash flow off the assets, it will be about $50 million but that $50 million will be covered in the total EMP cash flow; so really covered out of the Williston asset of $50 to $5 oil price, we’ll be kind of balanced through the whole program.

Unidentified Analyst

And then, I guess last on my end is just — and I’m sorry if I missed this in the deck; but what’s the assumed kind of drilling and completion cost in the model right now for your Delaware asset?

Thomas Nusz

So D&C cost is we’ve modeled it with the coming into the front part, it’s around $11.5 million and overtime we think we’ll work that down; so within the next year and a half we assume we’ll get to around $10 million. And just for comparison, if you look at some of the other operators that have the luxury of bigger programs and then what Forge has had and have been doing it for a while, they are in that $10 million range or even a little bit below that. So we think there is a path and we’ve demonstrated the same thing in the Williston, you’ve got learning curve and you’ve drilled up wells in the program, we think we’ll continue to drive that cost down.

Taylor Reid

And Michael, that would be for a 10,000 foot lateral, 2,000 pounds per foot type completion.

Operator

And the next question comes from Ron Mills with Johnson Rice.

Ronald Mills

Just a bit of a follow-up on the earlier question, you addressed the prop in terms of completion optimizations. You talked a little bit about targeting as far as you’ve been able to evaluate it, the lateral targeting from Forge, is it where you would have liked the wells to be targeted? And I guess, adding to that do you have — they have seismic over it to help identify the better lateral targets?

Thomas Nusz

They view some seismic, I don’t — that’s not a huge 3D issue but they’ve utilized seismic as to develop their prospects and to help them pick. In terms of targeting, we think they’ve done a good job, I think the well results speak for good zone selection, so we’ll be working with those guys in transition as we are picking wells going forward and just making sure that we understand everything that they’ve done and it’s consistent with the data we’ve been gathering in the area.

Ronald Mills

And to understand the core inventory across the four zones and including the upper end lower potential in both, the A and the B; I know they’ve only drilled 9 wells but in terms of derisking north to south, it looks like you have — most of your acreages is derisked, but how about within the — all of those benches [ph]?

Thomas Nusz

So if you look on Page 9, I’m sure — just one of the things you’re talking about, you can see that there is 9 wells drilled; the first 4 wells that are shown here, this is 480 days of production in the A, they’ve got wells in the additional 5 that are located in the other intervals and so in some of the other intervals; and the thing though that goes along with that is all the other activity in the area. So you can see that you’ve got a coverage in really all the inter formations that we’ve talked about from Third Bone Spring to Wolfcamp C, so when you take the Forge data plus the other data; we’re getting pretty comfortable with what we would expect to see in the other zones that A and B have the most wells drilled at this point but definitely an update and the others to give us a view and we’ll continue to improve on that.

Michael Lou

Right now of the 9, there is 5 in the A, 3 in the B and 1 in the lower Second Bone Springs; then there is a couple of others that are — those are 9 producing wells that are coupled but they aren’t producing as yet, I think one of those is of A and the other one also a lower Second Bone Spring’s well.

Ronald Mills

And then, Tommy, maybe for you; you have provided a little bit of context in terms of dealers strategy, their backers were seeing — couple of the backers that were in Oasis historically, it looks like from a management standpoint there is probably been quite a bit of overlap between whether the Burlington days and/or Conoco [ph] amongst other teams have — are members of your team; just a little bit of history on that.

Thomas Nusz

So, this is not much of like a lot of things that we do. We kind of figure out where we want to be and pick our spot as I mentioned earlier and you know, actually if you look back, whether it’s the Rosy deal, the SM deal; these projects — we learned it from anywhere from 12 to 24 months before we come into the right window where there is an opportunity that we think we can execute on it, this is one that we knew a lot about. As you mentioned, the incap [ph] guys were our capital sponsors and which is something that I think plays into the whole story here and that I think they did well with us once and I think they have a lot of trust in the management team.

On the Forge team, Ron, you hit on it, it’s a bunch of — the original founders were Burlington guys. Barry and I worked together when I came out of college in Midland, and then I worked in a number of places with Danny and Arnold in Farmington and Gulf Coast and so we’ve got a lot of history with these guys which makes the process like this a lot smoother across the Board, there is a lot of trust there and I think with else just getting to a transaction but I think that will help us also in transition. We’ve known some of these guys for 30 years, so I think it helps it to be a lot more efficient.

Ronald Mills

And then one last one; just — you talked on Slide 5 about the relative valuation with other transactions, can you just provide a little bit more color — it looks like the use of PDP value for the acquired production comes to about 38,000 per acres. I’m just curious the other transactions that you’re comparing to for that comment?

Thomas Nusz

I think as we look at it, we try to do relative comparisons with other transactions that looked the same. The Permian is a big combination of three sub basins for the like of a better term and even when you look at the Delaware in isolation, the thing that where you are in the Delaware, things can change a lot on a number of fronts, whether it’s rock properties, food properties with different GLRs and all kinds of other things, other acreage positions are consolidated or whether it’s a scatter shot and so when we do these kinds of comparisons we try to look at transactions that are similar to the ones that we’re entering into, we can go out and do a deal that’s got half go past your and really look great on surface metrics but really doesn’t do a whole lot for us.

So the great thing about this is that it’s all in a big contiguous block right in the heart and I think we — when we do our calculations and come up with that 38 to 39, we think that it’s — that’s very attractive relative to similar type transactions but you’re not going to — obviously, you wouldn’t see it that way if you just did a cheese spread of every transaction over the last two years but that’s not how we look at it.

Operator

And the next question comes from Gail Nicholson with KLR Group.

Gail Nicholson

Just about a standpoint of the expense structure, you said you’re going to pick up a little more G&A. When you look at the LOE, how does LOE on this asset compare to your Williston? And where do you think you can drop LOE down to us infrastructure fully build out?

Thomas Nusz

The LOE here relative to Williston is a little bit lower, it’s probably — early times, these balls are flowing, it’s going to — it will be pretty low, it’s in the $3 range and as you get into artificial lift and more wells and all those things, it’s going to turned up a bit for created time, so you may consider it to be $3 or $4 or in that range. So it will be additive to what we have in Williston.

Gail Nicholson

And you talked about $11.5 million to pay the well cost in the beginning; does a lot of that is in a push lately in the Delaware as well as [indiscernible] sand, is that assumed — using well-resourced sand is that something you guys are planning to test or thoughts around that?

Thomas Nusz

Yes, that $11.5 million I don’t think really incorporates lower cost for local source and so that is one of the things that we’ll optimize around, see if we can reduce the sand cost and try to do that across all the service components like we talked about. As we get into a full suite of completions where we can justify and whole frac crew, we’ll contemplate whether it makes sense for us to use our own services and help to drive down costs further that way.

Gail Nicholson

And then, if you guys did choose out to maybe a source of brand new fleet for OWS, what would that run you?

Thomas Nusz

There are fleets in the past have generally been kind of $20 million to $25 million range for the equipment. If we have a — coming into a new basin or having to service point and doing all those things, there is going to be incremental money to that and I don’t have a great figure on that at the moment. When we originally did Williston all-in that was more around $30 million but we’ll look at that as we go.

Operator

Thank you. That was the last question. I would like to return the call to Tommy Nusz, for any closing comments.

Thomas Nusz

Thanks. We’re really excited about this asset position and entry into the Permian but want to be clear that this is for us not a repositioning but a compliment to a tremendous Williston position that we’ve already got in place. This capitalizes on our operational competencies and full field development and also gives us the opportunity to redeploy capital tied up in a very attractive Williston asset base out in the Fairway that — what this transaction kind of tends to go to the end of our inventory. And so we feel like we can accelerate some value there and redeploy that capital and something also that we’re not — and at least in our minds for that — those things and the divestiture bucket assets that we think are meaningfully undervalued in our current stock price, so that repositioning should be very accretive to us.

So this expands our platform as we build scale with core of the core inventory and that inventory is going to be resilient as I talked about earlier to very low oil prices and will provide us what we think across the Board will be pure leading margins. I know the call is a little bit late today, and so I appreciate you guys hanging with us. And have a good evening.

Operator

Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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