EOG Resources Inc. (NYSE: EOG) wrapped up its $2.5 billion “bolt-on” acquisition of Yates Petroleum Corp., significantly increasing the E&Ps’ profile in the Permian Basin, Powder River Basin and emerging Northwest Shelf plays.
The deal vaults EOG into the top 10 Permian acreage holders, creating a 424,000 net acre position in the Delaware Basin as well as additional acreage in the Northwest Shelf of New Mexico.
On Oct. 4, EOG disclosed in U.S. Securities and Exchange Commission filings that it closed its Yates acquisition.
The deal consists of about $2.4 billion in stock, $16 million in cash and the absorption of $100 million in Yates’ debt.
“While the company had a presence in the Permian from day one of this resource play revolution, the Yates deal will add 186,000 net acres in the Delaware Basin,” said Irene O. Haas, an analyst at Wunderlich Securities Inc. “Combined, EOG now holds more than 574,000 net acres in the Permian region, making it one of the top 10 acreage holders in the region.”
EOG said the Yates entities’ net second-quarter 2016 production was about 28,600 barrels of oil equivalent per day (boe/d), 48% oil.
The Yates’ transaction adds 1.6 million total net acres to EOG, including:
- 180,000 net acres in the Delaware Basin core;
- 130,000 net acres in the Delaware Basin shelf (prospective for the Yeso, Abo, Wolfcamp and Cisco formations in New Mexico); and
- 200,000 net acres in the Powder River Basin.
The deal also includes 1.1 million net acres in New Mexico, Wyoming, Colorado, Montana, North Dakota and Utah.
The deal is somewhat out of character for EOG, which prefers organic growth to acquisitions, Haas said.
“Historically, EOG Resources rarely makes acquisitions,” Haas said.
EOG chairman and CEO William R. “Bill” Thomas described the deal in a Sept. 6 press call as “a really big bolt-on” and said the rationale for the deal “all boils down to we just see a unique opportunity to add very, very high quality acreage.”
The transaction with Yates adds 1,740 locations—what EOG terms “premium locations”—mostly in the Delaware and Powder River basins.
“We like the deal and expect EOG to make good use of its larger land base in the Permian and the Powder River Basin,” Haas said.
The company is expected to add one rig to the Delaware in fourth-quarter 2016 “and will likely add an unspecified number of rigs in 2017,” Haas said.
Typically, the company formally announces its capex plans in February.
“The capex budget for next year still aims to be cash flow neutral. The company is not hedged for oil in 2017 currently,” Haas said.
In 2016, the company's production is expected to be 51% oil, 14% NGL and 35% natural gas.
Yates’ position in the Delaware includes stacked pay in New Mexico that is prospective for the Wolfcamp, Bone Spring and Leonard shale formations.
Yates’ production and reserves include proved developed reserves of 44 MMboe.
Darren Barbee can be reached at email@example.com.
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