Northern Oil and Gas Inc. agreed on Nov. 16 to acquire Veritas Energy’s nonop position, significantly expanding its Permian Basin footprint in Northern’s largest acquisition to date.
“This transaction completes the strategic transformation of our business that began in 2018,” commented Northern CEO Nick O’Grady in a company release.
According to the release, Northern entered an agreement with Veritas to acquire its nonoperated oil and gas properties located in the Delaware and Midland basins for a cash purchase price of $406.5 million, subject to typical closing adjustments. The assets are primarily located in New Mexico’s Lea and Eddy counties and Loving, Reeves, Ward and Winkler counties, Texas.
As part of the transaction, Northern will issue the Veritas roughly 1.9 million seven-year equity warrants with a strike price of $28.30 at closing. The company said it expects to commence a public equity offering to fund a portion of the acquisition.
In total, the Veritas transaction is estimated to be worth $537.7 million.
“It will drive immediate significant accretion across the board to our investors,” O’Grady continued of the Veritas transaction, “increased cash returns, and importantly, creates a truly diversified business of scale, with substantial free cash flow that can self-fund future growth.”
Based in Minnetonka, Minn., Northern aims to be the go-to resource for operators that want to offload nonoperated working interests in leasehold. Originally focused in the Williston Basin, the company has within the last year begun to branch out into the Marcellus Shale and Permian Basin.
This year alone, Northern has gained substantial scale to its nonop position through over $800 million of acquisitions including the purchase of Comstock Resources Inc.’s nonop position in the Williston Basin, which also closed Nov. 16.
Pro forma for the Veritas and Comstock acquisitions, Northern Oil and Gas is now a more than 70,000 boe/d company, according to a company presentation.
“The Veritas transaction marks our fourth significant transaction in 2021 as we return focus to the Delaware Basin, further scaling our business and building inventory with premier operators,” added Northern COO Adam Dirlam in the release.
Veritas Energy’s nonop position covers approximately 6,000 net acres in the Permian Basin (about 70% Delaware) including over 600 risked gross undeveloped Delaware locations. Current production is about 9,100 boe/d (2-stream basis, 60% oil) with an estimated proved developed PV-10 of roughly $429 million.
The acquired assets include 31.7 net producing wells, 5.6 net wells in process, 4.0 AFE’d or permitted net wells and 40.8 risked net future development locations.
The assets are projected to be immediately self-funding at closing, generating approximately $43 million to $45 million of cash flow from operations in the fourth quarter with $50 million of capex and expected closing adjustments.
Given the strong cash flows from the assets, Northern’s management intends to submit a request to its board of directors for a 50% increase to the common stock dividend for the first quarter of 2022. If approved, the increase to a dividend of $0.12 per common share would represent a 300% increase since Northern’s initiation of a dividend program in May 2021, according to the company release.
The effective date for the transaction is Oct. 1, and Northern expects to close the transaction in first-quarter 2022. Morgan Stanley & Co. LLC is Northern’s lead financial adviser. Bank of America is a co-adviser to Northern on the transaction. Kirkland & Ellis LLP is serving as Northern’s legal adviser. Tudor, Pickering, Holt & Co. is financial adviser to Veritas. Willkie Farr & Gallagher LLP is serving as Veritas’s legal adviser. The Willkie team is being led by partners Michael De Voe Piazza and Steve Torello.
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