Independent oil and gas producer Callon Petroleum Co. (NYSE: CPE) announced late Tuesday that its operating subsidiary has entered a definitive agreement to acquire about 27,552 gross surface acres and other producing properties for a total cash price of $615 million. American Resource Development, American Resource Development Upstream and American Resource Development Midstream are the sellers.

In a separate announcement the company said it priced a secondary offering of 40 million shares to raise gross proceeds of $656 million to fund the acquisition. That pencils out to $16.40 per share, a discount of $1.00 per share from Tuesday’s closing price of $17.40.

This is Callon’s first entry into the Delaware basin portion of the Permian Basin, and it adds 16,098 net surface acres to the company’s net acreage in the rest of the Permian Basin. When the deal closes (expected by February 13, 2017) the company’s total Permian acreage will total about 55,500 net acres.

In addition to the net acreage, Callon also acquires about 1,945 barrels a day of oil equivalent production (71% oil) from 20 gross operated wells in the Wolfcamp and Bone Springs formation of the Delaware basin. The company said there are 206 net identified horizontal drilling locations already in inventory targeting the Wolfcamp with an average lateral length of 7,500 feet and 36% of the inventory with 10,000-foot laterals.

Chairman and CEO Fred Callon said:

The position is well-suited for long lateral development and offers the potential for the development of multiple shale and sand intervals in the core of the Southern Delaware Basin’s over-pressured oil window. We are looking forward to adding a fourth core operating area to our Permian portfolio and are currently planning to deploy an operated horizontal drilling rig to this acreage by mid-2017, in addition to our plans to be running four horizontal rigs in the Midland Basin by the end of 2017. Overall, we believe that this position is an excellent fit with our broader Permian portfolio and organizational capabilities, and, importantly, accretive to the value proposition for our shareholders.

In an analysis by S&P Platts Global published Tuesday, the internal rate of return (IRR) on a typical Delaware basin well is currently 37%, the best IRR of any location in North America. If crude prices reach $65 a barrel, the IRR rises to 51% in the Permian. Here’s why:

Well economics in the Delaware surpass those of competing plays with a robust oil initial production (IP) rate of 575 b/d, $6.0 million estimated drilling and completion (D&C) cost and a production mix that is heavily weighted towards oil at 76%. Not only that, the Delaware’s proximity to demand centers in the US Gulf Coast area and the overall quality of the barrel set it apart from the rest of the herd.

The adjacent Midland basin is almost as good, with a current IRR of 34% and a jump to 48% if crude reaches $65 a barrel. Wells in the Midland are a little cheaper to drill and initial production rates are about 100 barrels a day lower.

Callon shares traded down $0.90 earlier this morning at $16.50 but were recently seen at $16.59, down about 4.7% in a 52-week range of $4.21 to $18.53. The consensus 12-month price target on the stock is $18.73.

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