EOG Spends $2.5 Billion In Multibasin Yates Takeover

EOG RESOURCES INC., a rare par¬ticipant in M&A, said Sept. 6 it will purchase Yates Petroleum Corp. in a mammoth deal that vastly expands EOG’s Permian and Powder River Basin holdings.

EOG, already an Eagle Ford power¬house, will pay more than $2.5 billion in cash and stock for assets and 1.6 million acres in the Western U.S. held by Yates, a private independent, Abo Petroleum Corp., MYCO Industries Inc. and other companies.

Despite the size of the acquisition, EOG chairman and CEO William R. (Bill) Thomas described the deal in a Sept. 6 press call as just “a really big bolt-on.”

EOG will more than double its hold¬ings in the Delaware Basin and adjacent plays and greatly expand in the Pow¬der River Basin. The company does not intend any immediate changes to capex, though it will likely add a rig in the fourth quarter and another in 2017.

Yates’ position in the Delaware includes 186,000 net acres of stacked pay in New Mexico that is prospective for the Wolfcamp, Bone Spring and Leonard shale formations. The Yates’ acreage increases EOG’s Delaware position by 78% to 424,000 net acres.

Yates, which has been drilling since 1924, has been the target of many E&Ps over the years, said Charles Robertson II, an analyst at Cowen and Co.

“This transaction increases Permian and more specifically Delaware Basin locations to a level that is meaningful to EOG’s relative size,” he said.

With EOG’s existing acreage, the newly combined company will have 574,000 net acres in the Delaware Basin and Northwest Shelf.

“This transaction combines the com¬panies’ existing large, premier, stacked-pay acreage positions in the heart of the Delaware and Powder River basins, paving the way for years of high-re¬turn drilling and production growth,” Thomas said.

The deal’s production, reserves and acreage include:
-Volumes of 29,600 boe/d, 48% crude;
- Proved developed reserves of 44 MMboe;
-Delaware Basin position of 186,000 net acres;
- Northwest Shelf position of 138,000 net acres;
- Powder River Basin position of 200,000 net acres; and
- Additional 1.1 million net acres in New Mexico, Wyoming, Colorado, Montana, North Dakota and Utah.

The transaction with Yates adds 1,740 locations—what EOG terms “pre¬mium locations”—mostly in the Dela¬ware Basin and Powder River Basin.

Douglas E. Brooks, CEO of Yates, said the EOG deal was a “tremendous opportunity to combine EOG’s strong technical competencies with the enor¬mous resource potential of Yates.” Brooks previously served as CEO for Aurora Oil & Gas, a pure-play Eagle Ford Shale company sold to Baytex Oil Corp. in June 2014 for $2.7 billion.

Thomas said the Yates acreage sub¬stantially enhanced EOG’s ability to increase returns and capital efficiency.

“This really isn’t about getting big¬ger. It’s about getting better,” he said.

Yates’ 38,000 net acres on the North¬west Shelf in New Mexico are prospec¬tive for the Yeso, Abo, Wolfcamp and Cisco formations. The shallow plays have the potential to contribute addi¬tional amounts of premium inventory with the application of EOG’s advanced completion and precision targeting tech¬nologies and low cost structure.

Yates’ holdings will also expand EOG’s Powder River Basin holdings with another 81,000 net acres in devel¬opment prospective for the Turner oil play. In all, Yates will add 200,000 net acres in the Powder River Basin, dou¬bling EOG’s total Powder River Basin acreage to 400,000 net acres.

Under the terms of the agreements, EOG will issue 26.06 million shares of common stock valued at $2.3 billion and pay $37 million in cash, subject to certain closing adjustments and lock-up provisions.

EOG will assume and repay Yates’ $245 million of debt, offset by $131 million of anticipated cash from Yates.

Closing is anticipated in early Octo¬ber 2016, subject to customary condi¬tions. EOG intends to maintain Yates’ office in Artesia, N.M.

Wells Fargo Securities LLC was the exclusive financial and techni¬cal advisor to Yates, Abo Petroleum Corp. and MYCO Industries Inc. for the transaction. Thompson & Knight LLP, Modrall Sperling Law Firm and Kemp Smith LLP acted as legal advisors to Yates, Abo Petroleum and MYCO.

Akin Gump Strauss Hauer & Feld LLP acted as legal advisor to EOG.

PDC Energy Joins Delaware Basin Fray For $1.5 Billion

PDC ENERGY INC. said Aug. 23 it’s entering the Delaware Basin in one of the largest transactions so far this year in the Permian, which has been an A&D hub.

The Denver-based company said it entered definitive agreements to acquire two privately held companies, Arris Petroleum Corp. and 299 Resources LLC, managed by Kimmeridge Energy Management Co., for about $915 mil¬lion in cash and about 9.4 million shares of its common stock valued at approxi¬mately $590 million, according to PDC.

The deal, which adds a second core operating area to PDC’s portfolio, con¬sists of about 57,000 net acres in Reeves and Culberson counties in West Texas and about 7,000 boe/d of current net production.

PDC currently operates a large posi¬tion in the core of Wattenberg Field in the Denver-Julesburg Basin in Colorado. The company’s portfolio also includes assets in the Utica Shale in Ohio.

Despite low oil prices, the Permian has already seen billions of dollars in new deals in 2016.

On Aug. 15, Concho Resources Inc. said it will buy 40,000 net acres in the Midland Basin from Reliance Energy. The deal, valued at $1.625 billion, appears to be the basin’s largest deal of the year. Also in August, SM Energy Co. agreed to acquire a largely contig¬uous acreage position in the Permian from Rock Oil Holdings LLC for $980 million in cash. The acquisition doubled the company’s footprint in the Midland Basin to about 46,750 net acres from roughly 20,000 net acres. (More detail on the Con¬cho and SM deals fol¬lows in the A&D Watch section.)

PDC plans to finance the transaction through equity and debt offerings and a committed financ¬ing from J.P. Morgan. PDC’s current liquidity is about $1.4 billion, the company said.

The deal includes 21 horizontal wells with 93% average working interest. PDC is also acquiring owned and operated midstream infrastructure as part of the transaction.

PDC expects to spend about $55 mil¬lion to $65 million in the Delaware Basin for the remainder of 2016. The compa¬ny’s plans this year include spudding about nine horizontal wells and expand¬ing certain midstream infrastructure.

The transaction is expected to close in fourth-quarter 2016. —Emily Moser

Callon Bulks Up Midland Core

CALLON PETROLEUM CO. tacked on more Midland Basin acreage Sept. 6 as it continues to build a core operating area in Howard County, Texas.

The company said it agreed to pay ArcLight Capital’s Plym¬outh Petroleum LLC $327 million to buy certain oil and gas producing properties and undeveloped acreage in Howard.

The acquisition, which includes nearly 5,700 net surface acres and about 2,300 boe/d of current net production, is the Natchez, Miss.-based company’s second Midland deal so far this year. Pro¬duction is about 86% oil from horizontal and vertical wells.

In June, Callon closed an acquisition of 17,298 gross (14,089 net) surface acres in Howard for about $301 million. The com¬pany also gained additional acreage elsewhere in the Midland in Martin, Borden and Dawson counties, Texas.

More than 75% of Callon’s Plymouth acquisition offsets the company’s position in northwest Howard, which provides oppor-tunities for shared infrastructure and extended laterals, the com¬pany said.

Pro forma, the company’s Midland Basin position will include about 40,000 net surface acres—with about half, roughly 20,000 net surface acres, in northwest and central Howard County. The location is immediately adjacent to its WildHorse operating region.

Upon closing, Callon will assume operatorship of more than 90% of the acquired acreage. The company expects to hold about 82% average working interest and 62% average net revenue interest.

The company intends to fund the acquisition with an equity offering and its revolving credit facility. RBC Richardson Barr is Callon’s exclusive financial advisor in connection with the acqui¬sition, which is expected to close by Oct. 20. —Emily Moser

The Permian Reloaded: E&Ps, Private Equity Return With $1.5 Billion

TWO COMPANIES BACKED by pri¬vate equity are beginning to hunt for land, oil and the seemingly endless treasure of the Permian Basin.

Blackstone Energy Partners, an affili¬ate of Blackstone, has made commitments to two companies worth a combined $1.5 billion: Guidon Energy LLC and Jetta Permian LP.

The move comes after months in which public companies have bought out private operators in the Permian Basin. Private equity firms have since been reloading management companies amid the scram¬ble for acreage in the basin.

Blackstone and Guidon Energy, based in Dallas, said Aug. 25 their Midland Basin “platform company” closed an April purchase of about 16,000 net acres in the core of Martin County, Texas. The website TheStreet.com quoted unidentified sources as saying the seller of the assets is Endeavor Energy Resources LP. A Blackstone spokesperson said the firm would not comment on the seller.

Blackstone and its affiliate have com¬mitted about $500 million in capital to Guidon with the potential to commit “sig-nificantly more with future acquisitions,” the firm said.

Guidon is led by Jay Still, former president and COO of Laredo Petroleum Inc. and an experienced senior executive for Pioneer Natural Resources Co. Guidon’s veteran team includes oil and gas executives with extensive operational experience across a range of basins in North America.

Still and Blackstone formed Guidon in first-quarter 2016 with the concept of a significant, inde¬pendent shale company focused in the Midland.

Still said Guidon acquired a strategic and “top-tier position in the core of the Midland Basin, a premier North Ameri¬can liquids-rich play, [in a deal] which was signed in the second quarter of this year and has subsequently closed.”

On Aug. 25, Blackstone also announced its partnership with Jetta Permian, an affiliate of Fort Worth, Texas-based Jetta Operating Co. Inc.

Jetta Permian will target assets and leasehold in the Delaware in West Texas and southern New Mexico with a $1 bil¬lion capital commitment from Blackstone and Jetta.

Jetta plans to pursue asset and leasehold acquisitions, farm-in transactions and part¬nerships or joint ventures with existing operators and landowners.

Greg Bird, CEO and president of the general partner of Jetta Permian and the president and owner of Jetta, is an engi¬neer who previously worked for Hunt Energy Corp. and was a partner at petro¬leum engineering firm Cawley Gillespie & Associates.

Kirkland & Ellis LLP counseled Blackstone on the formation of Jetta Permian LP and advised Guidon Energy and Blackstone Energy Partners on their decision to acquire in the Midland Basin.

Jones Energy Steps Into The Scoop/Stack With 18,000 Net Acres

JONES ENERGY INC. is expanding its Midcontinent portfolio into the cov¬eted Scoop and Stack plays in central Oklahoma with a $136.5 million acqui¬sition, the company said Aug. 18.

The Austin, Texas-based com¬pany signed a definitive agreement to acquire about 18,000 net acres primarily in southern Canadian and northern Grady counties in Okla¬homa. The seller is Scoop Energy Co. LLC, an associated company of American Energy Partners, which shuttered its doors in May, accord¬ing to filings with the Securities and Exchange Commission.

Jones Energy plans to fund its acquisition with proceeds from public offerings of its common stock and pre¬ferred stock. The company estimates the implied acreage value of the transaction is about $7,600 per net acre.

The acreage appears to be “well south of what’s considered the epicen¬ter of the Stack core,” which is more in Blaine and Kingfisher counties in Okla¬homa, Mike Kelly, managing director of E&P research at Seaport Global Secu¬rities LLC, said in an Aug. 18 report.

“Without the benefit of an acreage map, tangible offset well results and economic projections, it’s hard to give a thumbs up or down call on this trans¬action,” he said.

Jones Energy has been eyeing the Scoop and Stack plays for some time, said Jonny Jones, the company’s founder, chairman and CEO.

“This transformative transaction gives Jones Energy a scalable footprint in one of the most coveted resource plays in the U.S. We identified this area as a primary target for Jones over a year ago and are thrilled to be acquiring assets in the heart of the Scoop/Stack play,” Jones said in a statement.

Jones Energy already has about 181,353 leased acres in the Midconti¬nent’s Anadarko and Arkoma basins in Oklahoma and the Texas Panhandle, according to the company’s website.

The company’s addition in the Scoop and Stack “high-grades our Midcontinent position and significantly enhances the growth outlook for Jones Energy in 2016 and beyond,” Jones added.

Most of the acreage is in the oil win¬dow of the Scoop and Stack. The assets are about 70% operated with an average working interest of about 50%.

The company expected the acquisition to close by the end of September, subject to completion of due diligence, satisfac¬tion of customary closing conditions and obtaining certain consents. —Emily Moser

Rock Oil Dishes On Recipe For $980 Million Midland Exit

FOR A SPECTACULAR EXIT in the Permian Basin—of which there have been some stunners this year—one can look to Rock Oil Holdings LLC.

On Aug. 8, the company sold its assets in Howard County, Texas, to SM Energy Co. for $980 million cash. Assets included 24,783 net acres and about 4,900 boe/d. The deal is scheduled to close in October.

How did the company, which formed in 2014, achieve this success so quickly? Rock Oil had the right people, the right strategy and acted at the right time, presi¬dent Jason Cansler told attendees of EnerCom’s recent Oil and Gas Conference.

Rock Oil started in March 2014 with an equity commitment of $500 million from Riverstone Holdings LLC and several other private equity investors. A previous version of the company focused on the Eagle Ford exited those assets at a material premium in 2012 and 2013.

The new company began with just nine people on the management team, including CEO Kyle R. Miller. Subsurface, petrophysical and land expertise were big factors in the company’s success, Cansler said.

“Our motto was: be fit, fast and efficient. Everybody had to step up in one way or another, and they all did,” he said. “The Midland Basin is obviously a phenomenal place to work, and having Riverstone Holdings as our backer … it was an amazing partner to work with.”

The company’s management looked at several basins and plays, including the Utica Shale, before settling on the Midland Basin as its sole focus in the summer of 2014. Thereafter it was a question of gradually assembling a premier lease position in Howard.

“We believed we were getting in in the early innings in Howard County, and we saw single-zone, single-well economics that we thought were quite good,” Cansler said.

Rock Oil grew gradually and was joined in the area by larger players such as Encana Corp. and Callon Petroleum Co.

“The interesting thing is that since we arrived in Howard County, over 150 horizontal wells have been drilled, or the equivalent of about $1.1 billion in capital spent on drilling—and [the] industry’s done about $5 billion of deals there since we entered,” Cansler said.

Rock Oil accumulated 24,783 acres in a series of deals, largely operated, and drilled 13 horizontal wells. The land had 127 vertical producers also, and the company was adding a new well every 20 days or so. —Leslie Haines