Northern Oil and Gas and Vital Energy embark on $1.1bn Delaware Basin acquisition

Northern Oil and Gas, Inc. (NYSE: NOG) and Vital Energy, Inc. (NYSE: VTLE) have unveiled a joint acquisition of Point Energy Partners, LLC’s assets for $1.1 billion. This deal marks a significant expansion in both companies’ operational scope within the Delaware Basin, promising to enhance their portfolio with high-value development inventory.

Major acquisition amplifies Delaware Basin footprint

Under the definitive agreement, Northern Oil and Gas will acquire a 20% undivided stake in the assets for $220 million in cash, while Vital Energy will secure the remaining 80% for $820 million. The transaction is expected to close by the end of the third quarter of 2024, with an effective date of April 1, 2024, contingent upon customary closing conditions.

Transaction details and financial highlights

The acquisition involves assets located primarily in Ward County, Texas, including approximately 4,000 net leasehold and mineral acres. Recent production from these assets stands at over 4,500 barrels of oil equivalent per day (Boe/d), with more than 75% of this output being oil. The expected cash flow from operations over the next twelve months is projected to exceed $75 million, reflecting a transaction multiple of less than 2.9x based on the unadjusted purchase price.

Vital Energy anticipates a significant price reduction at closing due to the April 2024 effective date. The funding for the acquisition will be sourced from cash flow from operations, available cash reserves, and borrowings under Vital Energy’s recently expanded $1.5 billion credit facility.

Strategic benefits and operational scale

The transaction is expected to be immediately accretive to Vital Energy’s key financial metrics, with over a 30% increase in adjusted free cash flow and more than a 20% rise in consolidated EBITDAX. Additionally, the deal adds approximately 68 gross inventory locations (49 net) with a breakeven oil price of $47 per barrel, and net production of about 30.0 thousand barrels of oil equivalent per day (MBOE/d), predominantly oil.

Long-term expectations and development plans

Vital Energy plans to moderate development activities relative to Point’s recent program, with no new wells scheduled before the transaction closes. Production rates are expected to decline naturally, with an estimated average of 15.5 MBOE/d in the fourth quarter of 2024. The company intends to invest approximately $45 million in the new properties during this period, maintaining one drilling rig and completing seven wells. Over the next 12 months, Vital Energy forecasts a drilling and completion program of 12 wells, resulting in a total production of around 15.0 MBOE/d and capital investments of approximately $100 million.

Expert opinions on the transaction

Jason Pigott, President and Chief Executive Officer of Vital Energy, highlighted the strategic value of the acquisition, noting that it expands the company’s Delaware Basin position and balances its Permian operations. He emphasized the potential for substantial value creation through optimized development plans and proven operating practices.

Nick O’Grady, Chief Executive Officer of Northern Oil and Gas, expressed enthusiasm about the partnership, stating that the acquisition aligns with the company’s strategy to secure high-quality properties and drive growth. Adam Dirlam, President of Northern Oil and Gas, also underscored the strategic fit of the assets within their existing Delaware Basin holdings.

Advisory teams and legal counsel

Houlihan Lokey is serving as lead financial advisor to Vital Energy, with Citi as a co-advisor. Gibson, Dunn & Crutcher LLP is the legal counsel for Vital Energy. Wells Fargo Securities, LLC advised on the senior secured credit facility, and DrivePath Advisors is providing financial communications advisory services. For Northern Oil and Gas, Kirkland & Ellis LLP is the legal counsel, while Jefferies LLC acted as financial advisor. Akin Gump Strauss Hauer & Feld LLP is serving as legal counsel to Point Energy Partners and Vortus Investments.