SM Energy Co. and Northern Oil and Gas Inc., both prominent U.S. shale drilling companies, have entered into an agreement to acquire assets in Utah’s Uinta basin for approximately $2.6 billion in cash.
This latest acquisition reflects the ongoing trend of consolidation within the oil and gas sector as companies seek to expand their operations.
Financial Breakdown of the Acquisition:
SM Energy has committed to paying a net amount of $2.04 billion for an 80% stake in the assets, currently held by XCL Resources LLC. Northern Oil will acquire the remaining 20% interest for $510 million.
This acquisition comes at a time when well-funded U.S. oil and gas companies are actively consolidating while also striving to replenish their drilling inventory.
Private Equity Exits and Energy Transactions:
The transaction also marks a significant exit for private equity investors from an energy company. XCL is backed by EnCap Investments LP and Rice Investment Group. Notably, another EnCap portfolio company recently agreed to divest Permian Basin assets to Matador Resources Co. for $1.9 billion.
Notable Energy Deals in the Market:
Warburg Pincus, a prominent buyout firm, is reportedly seeking a buyer for oil and gas explorer Citizen Energy, potentially fetching nearly $2.5 billion.
Additionally, Quantum Capital Group, another private equity player, has agreed to purchase Caerus Oil and Gas from a group of investment firms, representing a relatively rare instance of a secondary buyout in the U.S. oil and gas sector.
Expanding into the Uinta Basin:
SM Energy, which currently operates in the Eagle Ford and Midland basins in Texas, gains entry into the promising Uinta basin through this transaction. The Uinta region is known for producing a unique waxy crude oil used in lubricant manufacturing.
Operational Control and Asset Details:
Following the deal’s completion, SM Energy will assume the role of operator for the XCL assets, encompassing approximately 37,200 net acres. This strategic move strengthens SM Energy’s position in the evolving energy landscape.
Market Reaction and Financial Advisors:
Shares of SM Energy experienced a 4.5% decline in premarket trading, while Northern Oil shares saw a 1.2% decrease. Kirkland & Ellis LLP served as legal counsel for SM Energy, while Jefferies LLC acted as financial advisor and Vinson & Elkins LLP provided legal counsel for XCL Resources. RBC Capital Markets served as financial advisor for Northern Oil.