Northern Oil and Gas, Inc. (NYSE American: NOG) (“Northern”) today announced that it has agreed to acquire substantially all of the non-operated Permian Basin assets (the “Assets”) owned by certain entities affiliated with Veritas Energy, LLC (“Veritas” or the “Seller”).
PERMIAN BASIN ACQUISITION
Northern has entered into a definitive agreement to acquire non-operated oil and gas properties located in the Delaware and Midland Basins for a cash purchase price of $406.5 million, subject to typical closing adjustments. The assets are primarily located in Lea and Eddy counties, NM, and Loving, Reeves, Ward and Winkler counties, TX.
As part of the transaction, Northern will issue the Seller ~1.9 million seven-year equity warrants with a strike price of $28.30 at closing. Northern expects to commence a public equity offering to fund a portion of the acquisition.
Current production on the assets is approximately ~9,100/11,500 Boe per day (2-stream/3-stream, ~60% oil), and Northern expects average production of more than 10,500 Boe per day in 2022 (2-stream, ~60% oil). During the pre-closing period, Northern expects the assets to generate approximately $43 to $45 million of cash flow from operations in the fourth quarter of 2021 with $50 million of capital expenditures and expected closing adjustments. Northern expects the assets to be immediately self-funding at closing. Forward 1-year unhedged cash flow from operations from the effective date is expected to be approximately $185 million and 2022 unhedged cash flow from operations is expected to exceed $180 million, based on current strip pricing. Northern expects $35 to $40 million in capital expenditures on the assets in 2022. The acquired assets include 31.7 net producing wells, 5.6 net wells in process, 4.0 AFE’d or permitted net wells and 40.8 risked net future development locations. The assets are managed by multiple, best-in-class operators in the Permian Basin, including Mewbourne, Devon, ConocoPhillips, and EOG as the largest operators accounting for an estimated 64% of the expected 2022 production across the Assets.
The effective date for the transaction is October 1, 2021 and Northern expects to close the transaction in the first quarter of 2022.
RISK MANAGEMENT
In connection with signing the transaction, the Company plans to hedge a substantial portion of the expected oil and natural gas production on the acquired Assets for 2022 and additional hedges for PDP volumes in 2023 and 2024.
INCREASED STOCKHOLDER RETURNS
Given the strong cash flows from the Assets, Northern’s Management intends to submit a request to the Board of Directors for a 50% increase to the common stock dividend for the first quarter of 2022, for shareholders on record as of March 30, 2022. If approved, this increase to a dividend of $0.12 per common share would represent a 300% increase since Northern’s initiation of a dividend program in May 2021. Under Delaware law, the Board may not declare a dividend more than 60 days before the record date.
MANAGEMENT COMMENTS
“This transaction completes the strategic transformation of our business that began in 2018,” commented Nick O’Grady, Chief Executive Officer of Northern. “It will drive immediate significant accretion across the board to our investors, increased cash returns, and importantly, creates a truly diversified business of scale, with substantial free cash flow that can self-fund future growth.”
“The Veritas transaction marks our fourth significant transaction in 2021 as we return focus to the Delaware basin, further scaling our business and building inventory with premier operators,” commented Adam Dirlam, Chief Operating Officer of Northern. “Northern continues to set the standard for non-operated energy management and will remain steadfast in our focus on consolidating high quality, low-breakeven assets.”
ADVISORS
Morgan Stanley & Co. LLC is Northern’s lead financial advisor. Bank of America is a co-advisor to Northern on the transaction. Kirkland & Ellis LLP is serving as Northern’s legal advisor. Tudor, Pickering, Holt & Co. is financial advisor to Veritas. Willkie Farr & Gallagher LLP is serving as Veritas’s legal advisor.
