Evolution Petroleum Corp. entered into agreements to purchase non-operated oil and gas assets in the SCOOP and STACK plays in Oklahoma from three companies for $43.5 million cash — together equaling the largest transaction in the company’s history.

Evolution will acquire an average of 1,550 boe/d in production consisting of 42% oil, 15% NGL and 43% natural gas from Red Sky Resources III LLC, Red Sky Resources IV LLC and Coriolis Energy Partners I LLC. The deal includes approximately 230 production wells with an average working interest of about 3%. The interests are in the Anadarko Basin’s Blaine, Canadian, Carter, Custer, Dewey, Garvin, Grady, Kingfisher, McClain and Stephens counties.

Evolution said the transaction comes with “significant upside associated with approximately 3,700 net acres in the SCOOP and STACK plays with more than 300 gross undeveloped locations” with an average working interest of about 3%.

Evolution expects to fund the transactions from cash on hand and borrowings from its senior credit facility with MidFirst Bank. As of Dec. 31, and prior to the transaction, the company had approximately $8 million in cash on hand and had no outstanding borrowings under the facility. The company estimates that net debt after closing the transaction will be within its targeted leverage ratio of 1x pro forma Adjusted EBITDA.

Kelly Loyd, Evolution’s president and CEO, said the transactions are a significant achievement for the company and demonstrate its ability to buy high-quality assets in a core basin with “best-in-class operating parties.”

Acquisitions map oklahoma evolution petroleum
(Source: Evolution Petroleum investor presentation)

The assets are managed by E&Ps including Continental Resources, Ovintiv and EOG Resources, among others.

"In addition to the roughly 1,550 [boe/d] of production, these transactions further our strategy of ‘making acquisitions through the drill bit’ which was emphasized in our Permian drilling partnership in Chaveroo,” Loyd said. “We view this as crucial to enhancing our ability to accretively maintain or increase production at an attractive rate of return outside of making acquisitions.”

Loyd said the acquisitions are “more than self-funding, meaning they are expected to generate sufficient free cash flow to both participate in future wells and to contribute excess free cash flow back to the company to be used for dividends, debt repayment and other corporate uses."

The acquisitions also continue Evolution’s strategy to diversify its asset base in “world-class” basins with ample takeaway and processing infrastructure and well-established end sales markets.

“They also greatly diversify our portfolio classification by adding not just PDP wells but also low working interest exposure to more than 300 gross, high-quality undeveloped locations,” he said.

The acquisitions are expected to close in mid-February.

Activity highlights
(Source: Evolution Petroleum investor presentation)