Evolution Petroleum closed on Jan. 20 a $25.9 million acquisition of nonoperated Williston Basin assets that the Houston-based company’s CEO said will immediately provide incremental free cash flow in support of its current dividend policy.
“This represents a significant increase in potential undeveloped reserves that we anticipate will be supportive of our dividend for many years to come,” Jason Brown, president and CEO of Evolution Petroleum, commented in a company release.
In the release, Evolution said it closed the acquisition of 50% of certain interests held by privately-owned Foundation Energy Management LLC within the Williston Basin in North Dakota’s Billings, Golden Valley and McKenzie counties.
The transaction represents a new geographic region to Evolution’s diversified portfolio of oil and gas assets across the U.S. with the addition of roughly 2.3 million boe (80% oil, 9% NGL) of long-life producing reserves, using Jan. 14 strip pricing.
In total, Evolution acquired from Foundation an average working interest of about 39% in 73 producing wells along with roughly 47,500 net acres (85% HBP) with associated interest in over 400 gross potential drilling opportunities in the Williston Basin.
Evolution expects the acquisition to increase its net daily production by approximately 10% or 596 boe/d, based on the three months ended Sept. 30, 2021.
The transaction also establishes a strategic operational relationship with Foundation, which Brown said will provide Evolution direct collaboration and involvement with the pace of asset development, “including the ability to propose and execute targeted drilling and completion of potential drilling opportunities,” he said.
Foundation will be the operator of the assets. As part of the purchase and sale agreement, Evolution said it entered into a joint development understanding with Foundation to establish the working relationship to develop the asset area prudently and in both owners' financial interest. As part of the agreement, Evolution has the ability to both propose and execute drilling locations within the asset footprint.
A limited drilling program is not expected to begin until 2023, according to the release.
Evolution Petroleum’s long-term goal is to build a diversified portfolio of oil and natural gas assets primarily through acquisition, while seeking opportunities to maintain and increase production through selective development, production enhancement, and other exploitation efforts on its properties, the company release said.
The company’s portfolio currently includes nonoperated interests in the Barnett Shale in North Texas, a CO₂ EOR project in Louisiana’s Delhi Field, a secondary recovery project in Wyoming’s Hamilton Dome Field.
Brown said he expects to quickly integrate the Williston transaction with a minimal increase in overhead, similar to the company’s purchase of interests in the Barnett Shale, which Evolution acquired from Tokyo Gas Co. Ltd. in May 2021.
“We look forward to executing on additional targeted acquisition opportunities that provide immediate benefit to our shareholders and support our long-term strategy of driving increased and sustainable long term dividend payouts,” Brown added in the release.
The transaction had an effective date of June 1 and closed on Jan. 14.
Evolution funded the Williston transaction from cash on hand and borrowings from the company’s senior credit facility with MidFirst Bank. Effective Nov. 9, Evolution’s borrowing base was increased to $50 million, with an elected commitment amount of $40 million.
Prior to the transaction, the company had approximately $13 million in cash on hand and had $4 million drawn under the credit facility. Evolution estimates that net debt after giving effect to the transaction will be well below the company’s targeted maximum of one times pro forma adjusted EBITDA.
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