APC Anadarko Petroleum Corporation

By Lynn Cook 

Oilman Jim Hackett said Thursday that his new Oklahoma oil-and-pipeline venture would increase drilling in the Stack shale play in Oklahoma over the next 18 months and spend heavily on pipelines, storage facilities and gas-processing plants to speed the fuel to market.

Mr. Hackett's Silver Run Acquisition Corp. II, backed by Riverstone Holdings LLC, announced late Wednesday that it would buy two companies with experience in the Stack: Alta Mesa Holdings LP, a private exploration and production outfit, and Kingfisher Midstream LLC, a pipeline company.

The combined companies, which will be renamed Alta Mesa Resources Inc., will have a combined market capitalization of $3.8 billion.

Mr. Hackett, the former Anadarko Petroleum Corp. chief executive, said he planned to helm the day-to-day operations of the pipeline assets himself, working in partnership with Harlan Chappelle and Michael Ellis, Alta Mesa's chief executive and chief operating officer.

The new, combined company, represents a big bet on the Stack play, west of Oklahoma City -- and one of the least expensive shale drilling regions in the U.S. Alta Mesa already has more than 4,000 potential well targets in the area, he said.

"There are one or two careers worth of opportunities just in the Stack," Mr. Hackett said Thursday in an interview with The Wall Street Journal

When recently setting his sights on shale, Mr. Hackett targeted Oklahoma over Texas because "the Permian Basin has been picked over pretty well," he said.

Mr. Hackett said Alta Mesa plans to add new natural-gas processing plants, then spin the pipelines and processing assets out in an initial public offering of a master limited partnership in early 2019.

Using the master limited partnership structure would allow Alta Mesa to keep control over the pipelines while generating $3 billion in value, almost paying for this week's transaction, he said.

Alta Mesa's wells on 120,000 contiguous acres in some of the most prolific parts of Kingfisher County can break even around $25 a barrel, and produce as much as 80% oil and just 20% natural gas in their first year of output, the company said. It will have 10 rigs drilling there by the end of 2018, Mr. Hackett said.

Add in the pipeline portion of the deal -- a 300-mile network of gathering pipelines owned by Kingfisher, along with oil storage and gas processing plants -- and Mr. Hackett considered it a good bet.

Getting a critical mass of pipelines and process capacity in the area is key to Alta Mesa's strategy. Combining Alta Mesa with Kingfisher creates a kind of vertically integrated independent shale producer that will get first bite at the apple for space on pipelines.

Alta Mesa had already filed regulatory paperwork to prepare to go public, because the company lacked the funding it needed to really take off. Developing shale acreage requires near constant drilling to generate output that can turn a profit.

The deal Wednesday marked the latest turn in Mr. Hackett's storied history as an energy-deal hound, which goes back to his days as an executive with Pan Energy when it merged with Duke Power in the mid-1990s. That was followed by successive tie-ups between Seagull Energy, Ocean Energy and Devon Energy Corp. As chief executive of Anadarko Petroleum Corp., he oversaw two all-cash deals to acquire Kerr-McGee Corp. and Western Gas Resources Inc.

Investors this spring gave Mr. Hackett, who left Anadarko in 2013 to pursue a theology degree at Harvard Divinity School, a $1 billion check to go hunting for value.

Write to Lynn Cook at lynn.cook@wsj.com

(END) Dow Jones Newswires

August 17, 2017 17:35 ET (21:35 GMT)

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