SM Energy and Northern Oil and Gas (NOG) have agreed to jointly acquire certain oil and gas assets in Uinta Basin in Utah, US in a deal worth $2.55bn with XCL Resources.
The assets are owned by certain entities affiliated with XCL Resources, which is a privately held firm backed by EnCap Investments and Rice Investment Group.
Northern Oil and Gas will acquire an undivided 20% of the assets for $510m while SM Energy will spend $2.04bn to acquire the remaining 80%.
SM Energy said that it intends to become the operator of the assets that are presently operated by XCL Resources. Northern Oil and Gas will take part in development pursuant to cooperation and joint development agreements entered into in connection with the acquisition.
Northern Oil and Gas CEO Nick O’Grady said: “The Uinta Basin has emerged as one of the best and fastest growing oil resources in the United States, and SM has a track record as one of our best and most responsible operators.
“We look forward to working with them for many years to come. We believe this transaction will be the most accretive in our history, benefiting per share net profit and free cash flow both immediately and over time.”
The deal will give nearly 37,200 net acres to SM Energy and around 9,300 acres to Northern Oil and Gas. The assets being acquired are mainly spread across the Uintah and Duchesne Counties.
According to SM Energy, the Uinta Basin possesses significant potential with multiple layers of oil-rich formations, leading to strong well performance and a substantial inventory with growth prospects.
SM Energy also claimed that owing to its history of co-developing multiple geological layers, the company could enhance value across up to 17 different sections in the assets.
The acquisition is expected to increase SM Energy’s production to approximately 195 thousand barrels of oil equivalent per day (MBoed), with crude oil comprising over 50% of its production mix by 2025.
Additionally, the transaction includes around 390 net drilling locations, extending SM Energy’s inventory life by more than two years to over 12 years.
Furthermore, SM Energy will add approximately 107 million barrels of oil equivalent in preliminary proved reserves, representing an increase of about 18% in its estimated net proved reserves.
SM Energy president and CEO Herb Vogel said: “Our differentiated technical team has again demonstrated what sets us apart, having identified a unique opportunity to add top-tier assets with significant upside for a reasonable multiple.
“We believe that this transaction checks the boxes for our acquisition criteria, and we expect to demonstrate value creation through performance optimisation, inventory expansion and growth in adjusted free cash flow.”
The acquisition’s effective date is 1 May 2024, with the closing anticipated in September 2024, subject to the meeting of customary closing conditions.
SM Energy has engaged Kirkland & Ellis as its legal counsel. XCL Resources has Jefferies as its sole financial adviser while Vinson & Elkins is serving as legal counsel.
For Northern Oil and Gas, RBC Capital Markets is the financial adviser and Kirkland & Ellis is the legal counsel.
