Oklahoma City-based Riley Exploration Permian Inc. is expanding its footprint into new parts of New Mexico.

Riley Permian agreed pay $330 million in cash to acquire oil and gas assets in New Mexico from Pecos Oil & Gas LLC, an affiliate of Cibolo Energy Partners LLC, the companies announced Feb. 28.

The deal adds 11,700 contiguous net acres in Eddy County, New Mexico, with current production of 4,200 bbl/d (7,200 boe/d) to Riley Permian’s portfolio. The transaction also tacks on more than 100 gross horizontal development drilling locations to Riley Permian’s oil-weighted portfolio, Riley Permian said.

In addition to oil and gas assets, the deal grants Riley Permian 100% ownership of associated water gathering and disposal infrastructure, including about 70 miles of water gathering pipelines.

Riley Exploration Permian Grows New Mexico Footprint with $330 Million Deal
The majority of Riley Permian’s acreage is located on contiguous blocks in Yoakum County, Texas. (Source: November 2022 Company Overview Presentation)

 “This is an under-developed asset with extensive development potential, allowing for value creation potential through the drillbit,” said Bobby Riley, chairman and CEO of Riley Permian, in a Feb. 28 statement. “Our enhanced scale will improve our cost structure, will facilitate normalizing development cadence and may lead to oilfield service cost savings.”

Related: Riley Permian Provides Update on Yoakum County EOR Project

Similarities to Riley Permian’s core asset

Riley Permian said Pecos Oil & Gas’ asset, located within New Mexico’s Yeso Formation, has geological similarities to Riley’s existing core asset in the San Andres formation in Yoakum County, Texas. The company also has acreage in Lea and Roosevelt counties, New Mexico.

Riley Permian expects drilling and completion costs in the Yeso Trend will be lower overall for shallower, conventional source rock compared to deeper shale wells, allowing the New Mexico asset to compete on drilling economics with the company’s core asset.

Riley Permian said the transaction is valued at 3.4x 2023 adjusted EBITDAX and a 15% free cash flow (FCF) yield, accretive relative to Riley Permian’s 2023 stand-alone metrics.

Riley Permian plans to finance the acquisition using borrowings under the company’s revolving credit facility and proceeds from issuing new senior debt. Riley Permian plans to issue $200 million of senior unsecured notes upon closing the deal, which is expected to occur during the second quarter.

Riley Permian expects acquisition close early in the second quarter of 2023 with an effective date of Jan.1, 2023, according to regulatory filings.

Acquisition boosts production, FCF

On a combined basis, the transaction is forecasted to increase Riley Permian’s adjusted EBITDAX by about 50% and FCF by about 70% in 2023.

The E&P reportedaverage oil production of 9,400 bbl/d during  third-quarter 2022 (12,700 boe/d), according to the company’s most recent quarterly earnings report. The company anticipated that oil production in the fourth quarter would average between 9,400 bbl/d and 9,900 bbl/d.

Riley Permian fourth-quarter and full-year 2022 earnings are scheduled to be released on March 8.

Riley Exploration Permian went public through a reverse merger with the Colorado-based Tengasco Inc. in an all-stock deal in February 2021.

The company’s predecessor, private equity-backed Riley Permian, was formed with the goal of building a premier Permian Basin pure-play business.