RSP Permian (RSPP) to Acquire Silver Hill Energy Partners in $2.4B Deal; Boosts FY16 Outlook

RSP Permian, Inc. (NYSE: RSPP) announced it has entered into definitive agreements to acquire Silver Hill Energy Partners, LLC ("SHEP I") and Silver Hill E&P II, LLC for $1.25 billion of cash and 31.0 million shares of RSP common stock ("RSP Shares") in aggregate, implying a total purchase price of approximately $2.4 billion (based on the 20-day volume weighted average price of RSP Shares as of October 12, 2016).

Silver Hill is comprised of two privately held entities controlled by affiliates of Kayne Anderson Capital Advisors, LP ("Kayne Anderson") and Ridgemont Equity Partners ("Ridgemont") that collectively own ~68,000 gross / ~41,000 net acres in northeast Loving and northwest Winkler Counties, Texas with ~15 MBoe/d of current net production from 58 producing wells (49 horizontals) and ~3,200 gross / ~1,950 net total undeveloped locations.

While both transactions will have an effective date of November 1, 2016, the two transactions will close separately. SHEP I is expected to close in the fourth quarter of 2016, with Silver Hill receiving approximately $604 million of cash and 15.0 million RSP Shares. SHEP II is expected to close in the first quarter of 2017, with Silver Hill receiving approximately $646 million of cash and 16.0 million RSP Shares. Both transactions are subject to certain closing conditions, customary purchase price adjustments, and regulatory and third party approvals.

Upon closing of SHEP II, Kayne Anderson, Ridgemont and other Silver Hill shareholders are expected to collectively own approximately 20% of RSP's outstanding shares pro forma for the issuance to Silver Hill and the concurrent equity offering that will fund a portion of the consideration for the acquisition. In addition, RSP expects to add Kyle D. Miller, CEO of Silver Hill, to RSP's Board of Directors upon closing SHEP II.

RSP has provided an operational update including (i) 3Q 2016 production, (ii) an increase to 2016 guidance and (iii) preliminary 2017 operating plans and outlook.

Transaction Highlights

• Unparalleled opportunity to unite two premier, growth-focused companies in the Permian Basin with complementary asset bases
• Combination is accretive to RSP on a cash flow, production and net asset value basis
• The acquisition creates substantial scale with combined current production of approximately 50 MBoe/d, over 100,000 net surface acres, over 500,000 net effective horizontal acres and over 3,600 net drilling locations with substantial additional upside from tighter spacing assumptions
• Unique acquisition of a highly contiguous acreage position in the core of the Delaware Basin that has approximately 68,000 gross / 41,000 net surface acres located in Loving and Winkler counties
  • Acreage located in the thickest, deepest part of the Delaware Basin, which is significantly over-pressured
  • Blocked up acreage configuration conducive for longer laterals and efficient development
  • Located in an oil-weighted area of the Delaware Basin
  • ~250,000 net effective horizontal acres across 7 horizontal pay zones
  • Significant operational control with over 80% of acreage operated
  • Average working interest in operated properties of approximately 83%
  • One operated rig holds acreage position
  • Offset operators include EOG, Anadarko, Shell, Matador and Devon
  • Meaningful and growing production base with current net production of approximately 15.0 MBoe/d (69% oil, 86% liquids) and two operated horizontal rigs currently drilling on acreage position
• Deep inventory of attractive horizontal drilling locations across multiple horizontal stacked pay zones, including the Wolfcamp B, upper and lower Wolfcamp A, 3rd Bone Spring, 2nd Bone Spring, Avalon, and Brushy Canyon
  • EURs of ~1.0 MMBoe common across acreage position based on management's estimates
  • ~3,200 gross / ~1,950 net locations with average lateral length of approximately 6,300'
    • Acreage trades on-going for longer lateral development
• Ability to leverage RSP's efficient, low-cost operating capabilities and technical knowledge of multi-zone, horizontal development and apply to early and evolving drilling and completion techniques in the Delaware Basin

Steve Gray, CEO of RSP, stated, "We are extremely pleased to announce a strategic combination with Silver Hill. This transaction creates a compelling growth platform with the highest quality assets in the core of both the Midland and Delaware Basins that each exhibit strong returns and have substantial combined upside. The Silver Hill team has done an incredible job of demonstrating the vast potential of the asset base with strong results across multiple horizontal zones." Mr. Gray continued, "We have been patient in our M&A efforts to ensure that we pursue accretive opportunities for our shareholders that enhance our already deep inventory of high-return horizontal locations. We believe the assets of Silver Hill are located in the best part of the Delaware Basin and will be a perfect complement to our existing asset base. The returns on Silver Hill's horizontal wells compare favorably with our Midland Basin assets and generally rank in the top quartile of our drilling inventory. We also appreciate the confidence the owners of Silver Hill have in the RSP team, taking a significant portion of their consideration in RSP stock. We look forward to our new relationship with Kayne Anderson, Ridgemont and the other Silver Hill owners."

Kyle D. Miller, CEO of Silver Hill, stated, "Silver Hill has assembled one of the largest and most attractive privately-owned acreage positions in the core of the Delaware Basin. This transaction provides our owners with near-term liquidity and continued upside exposure to these premier assets through our significant equity ownership in RSP. We have long-standing relationships with the RSP management team and recognize the significant value they have created for investors through their technical leadership, efficient operations and adherence to a focused strategy. We believe RSP is the perfect fit for Silver Hill given their excellent track record, their superior assets in the Midland Basin and their experienced management team."

Transaction Financing

The Company intends to finance the cash portions of the SHEP I and SHEP II transactions through potential capital market transactions, which may include equity or debt offerings prior to the closing of each transaction. The Company anticipates that the financing transactions will be leverage neutral or result in lower leverage metrics on a forward-looking and pro forma basis.

3rd Quarter 2016 Production Update

RSP's average daily production rate for the third quarter of 2016 was 29,761 Boe/d (approximately 73% oil), a 24% increase over our average daily production rate for the third quarter of 2015 and a 13% sequential quarterly growth rate over our average daily production rate for the second quarter of 2016. Average realized prices (excluding hedges) during Q3 2016 were $42.60 per barrel of oil, $2.27 per Mcf of natural gas and $10.82 per barrel of natural gas liquids.

Increased 2016 Guidance

RSP is increasing its annual 2016 production guidance as a result of continued strong well performance from our existing asset base and as a result of the anticipated closing during the fourth quarter of the SHEP I transaction, which is estimated to be closed on or about November 28, 2016. Due to the short time period we expect to own the SHEP I assets during 2016, the acquired production does not meaningfully impact our increased guidance range. Our current net daily production rate is approximately 35.0 MBoe/d and we estimate that our net daily production will average between 28.5 - 29.5 MBoe/d for the full year 2016, or ~5% above the midpoint of our previous guidance range and 16% above the midpoint of our original 2016 guidance range.

2017 Preliminary Outlook

The Company anticipates that the SHEP II transaction will close on or about March 1, 2017, following a shareholder vote to approve the issuance of RSP Shares to fund the transaction.

RSP anticipates adding a fourth operated horizontal rig on our Midland Basin properties and a third operated horizontal rig on the newly-acquired Delaware Basin properties during the second quarter of 2017. In addition, the Company expects to add a fourth operated horizontal rig on the Delaware Basin properties during the fourth quarter of 2017 for a total of eight operated horizontal rigs by the end of 2017 with four operated horizontal rigs running in each area. Our preliminary 2017 drilling and completion budget is expected to be within a range of $520 - $560 million and a total capital expenditure budget, including infrastructure and workovers, is expected to be $570 - $630 million. We estimate our net daily production in 2017 to average in the range of 52.0 - 56.0 MBoe/d (72%-74% oil), or approximately 86% above our revised 2016 mid-point guidance.

Hedging Update

Advisors

RBC Capital Markets acted as lead M&A advisor to RSP and provided fairness opinions to RSP's Board of Directors on the SHEP I and SHEP II transactions and Barclays Capital Inc. acted as a co-M&A advisor on the transactions. Vinson & Elkins L.L.P. served as legal counsel to RSP. Jefferies LLC acted as financial advisor to Silver Hill and Thompson & Knight LLP and DLA Piper LLP served as legal counsel.

Conference Call

RSP will host a conference call for investors on October 14, 2016 at 9:00 am Central time to discuss these strategic transactions. Hosting the call will be Steve Gray, Chief Executive Officer, Zane Arrott, Chief Operating Officer and Scott McNeill, Chief Financial Officer.

The call may be accessed live over the telephone by dialing (877) 705-6003, or for international callers, (201) 493-6725. A replay will be available shortly after the call and can be accessed by dialing (844) 512-2921, or for international callers (412) 317-6671. The passcode for the replay is 13647806. The replay will be available until October 28, 2016. A simultaneous webcast of the call and slides summarizing the transaction may be accessed at www.rsppermian.com

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