[Editor’s note: This is a developing story. Check back for updates.]

SM Energy Co. (NYSE: SM) played switch hitter to A&D perfection, simultaneously buying in the Midland Basin and selling in the Williston Basin in deals collectively valued at $1.885 billion, the company said Oct. 18.

In the Williston, Oasis Petroleum Inc. (NYSE: OAS) agreed to buy SM Energy’s 55,000 net acres for $785 million. Fourth-quarter production on the acreage is expected to average 12,400 barrels of oil equivalent per day (boe/d), Oasis said.

In the Midland Basin, SM acquired 35,700 net acres in Howard and Martin counties, Texas, for $1.1 billion. SM’s Midland acquisition boosts its position 43% to 82,450 net acres.

The purchase from QStar LLC and an undisclosed party adds production of about 2,400 boe/d.

Houston’s QStar, formed in 2013, is backed by EnCap Investments LP and led by CEO Gerald R. Carman.

The Howard acreage complements and is partially contiguous to the company’s recently closed $980 million Midland acquisition.

SM will pay $1.1 billion cash and issue 13.4 million shares of stock to QStar, reminiscent of RSP Permian Inc.’s (NYSE: RSPP) cash and large stock transfer in an Oct. 13 Delaware Basin deal valued at a $2.4 billion. Its sale of the Williston’s Raven/Bear-Den acreage to Oasis will partially offset the cost.

The price will continue some questions that Wall Street and analyst have about late entrants to the Permian and what that means for development and economics, said David Tameron, senior analyst at Wells Fargo Securities.

Brian Velie, an analyst at Capital One Securities, said the near doubling of SM’s Midland acreage and the acceleration of development plans will add about $2/share to the company’s net asset value (NAV).

SM did not give a breakdown of its new acreage in Howard and Martin but the area matches SM's pre-existing footprint.

SM plans to accelerate its drilling plans on the acreage. Preliminary plans for Midland include adding a fourth rig in the fourth quarter and increasing to six rigs in early 2017, said Jay Ottoson, SM president and CEO.

“We continue to work to concentrate capital on the highest return programs and generate higher company-wide margins, which drive cash flow growth and value creation for our shareholders,” he said.

Ottoson said the acquisition establishes significant scale for the company.

“We are particularly excited about the performance and future potential of Howard County, leading us to further core up our portfolio and focus on this fast emerging, top tier area,” he said.

SM has swiftly upsized its Permian inventory through acquisitions. The company reported a growth of more than 4,171 locations since January, when it had roughly 734—a five-fold increase.

No Mirage

Oasis said its Bakken buy is a natural fit to its Williston territory, though the company appears to have paid a premium for locations. Overall, the deal value is worth roughly 19% of Oasis’ enterprise value.

The purchase price was about $285 million more than KeyBanc Capital Markets $500 million estimate for the Raven/Bear-Den acreage, analyst David Deckelbaum said.

“The valuation works out to about $5,200 per acre adjusted for production, but about $4 million per core location, which appears a bit rich,” he said.

However, Oasis will inherit estimated fourth-quarter production of about 12,400 boe/d. The company expects to operate about 75% of the properties based on proved reserves.

For SM, the value of the Bakken assets exceeded Capital One’s estimates, raising the company’s NAV by another $2/share.

“SM didn't have to market its (excluding Divide County, N.D.) Williston position for long,” Velie said. “Roughly two weeks after putting [it] on the block, SM found a buyer in OAS. The transaction gets a scattered capital-starved asset out of SM's hands and into an operator with nearby activity and acreage.”

Thomas B. Nusz, Oasis' chairman and CEO, said the acquisition fits into the company’s existing core and extended core positions and increases its gross operated drilling locations there by 25%.

“With our continued capital efficiency and best-in-class operations in the Williston Basin, we are well positioned to take full advantage of this complementary asset that we believe will generate substantial shareholder accretion based on our currently anticipated acquisition financing,” Nusz said.

While the deal could present lateral length synergies for Oasis, Decklebaum said it “lacks meaningful accretion.”

“Pro forma, we estimate that the deal is roughly 3% accretive to {revalued net asset valuation] but will slightly expand 2017 valuation multiples,” he said.

Oasis will fund the deal with an offering of 40 million shares for proceeds of roughly $420 million. Most of the acreage is near the company’s Wild Basin area or scattered across McKenzie County, N.D.

Petrie Partners served as exclusive financial adviser to SM Energy in connection with both transactions. Jefferies LLC served as sole financial adviser to QStar and EnCap Investments.

SM said its acquisition is expected to close by mid-December with an effective date of Sept. 1, 2016. The divestiture is expected to close in early December, with an effective date of Oct. 1, 2016.

Darren Barbee can be reached at dbarbee@hartenergy.com.