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Unit Oil Announces $600M Buy of Noble Energy Assets

Early Wednesday morning in Tulsa, Okla., Unit Oil (UNT) announced that its subsidiary, Unit Petroleum Company, has reached an agreement with Noble Energy, Inc. (NBL) to acquire about 84,000 acres as well as other oil and natural gas assets in western Oklahoma and the Texas Panhandle for about $617 million cash. The deal is expected to be finalized in September.

Unit Corporation (NYSE:UNT)

The land in this acquisition is expected to have about 44 million barrels in reserve, with an anticipated net production of about 10,000 barrels, according to a press release. The transaction is expected to be financed with long-term debt, though Unit is considering the sale of about $200 to $300 million in assets to help offset that.

Early market trading Wednesday lifted Unit’s stock by nearly 3 percent, while Noble has gained about 2 percent.

In the release, Unit president and CEO Larry D. Pinkston said, “This is an important growth step for Unit and represents a unique opportunity that benefits all three of our business segments. For our upstream business segment, it will more than double our acreage in the Granite Wash Texas Panhandle core area, a highly prolific liquids-rich fairway in the Anadarko Basin. We plan to accelerate the drilling activity in the acquired properties over the next 12 to 18 months using seven rigs from our contract drilling segment, and we plan to operate the acquired gathering systems and, as appropriate, replace existing third party processing contracts beginning in 2015. We anticipate that this acquisition will immediately be accretive to cash flow and to earnings beginning in 2013. It will also provide us with additional inventory of drilling opportunities that will allow us to significantly grow our production in the Anadarko Basin focused on oil- and liquids-rich gas targets. We look forward to accelerating development of these assets and delivering growth to our shareholders over the next several years.”

In addition to the purchase, Unit gave its second-quarter production estimate of 3.4 million barrels, which would be a 2 percent increase over the first quarter of 2012 and 12 percent over the second quarter of 2011.

This looks to be welcome news for stockholders in Unit, including hedge funds like Chuck Royce’s Royce and Associates and Dmitry Balyasny’s Balyasny Asset Management. Royce is a large player in Unit ($309 million invested at the end of March), and Balyasny jumped in during the first quarter of 2012 with a nearly $7 million play. While the long-term debt idea of financing may not be easy for some, the opportunity long-term with this deal may be a boon for stockholders over the next couple of years as Unit brings its rigs online in these new land purchases.

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