Reliance Industries signs $250m deal to offload US shale assets to Northern Oil and Gas

Reliance Industries has signed a $250 million worth deal to offload its stake in some producing assets in the Appalachian Basin in US held by its fully-owned subsidiary Reliance Marcellus to Delaware-based Northern Oil and Gas.

The assets are located in the Marcellus shale play in south-western Pennsylvania, that are currently operated by EQT’s affiliates.

As per the terms of the deal, Reliance Industries will be paid $175 million and will be issued warrants that will enable it to purchase 3.25 million common shares of Northern Oil and Gas, priced at $14 per share, over the next seven years.

As of 1 July 2020, the assets’ production was about 120 million cubic feet of natural gas equivalent per day (MMcfe/d) of natural gas equivalents for Reliance Marcellus.

Northern Oil and Gas estimates its share in the production of the assets to be about 100-110MMcfe/d for the current year.

The deal gives the company approximately 64,000 net acres of acreage, containing nearly 102.2 net producing wells, around 22.6 net wells in process, and about 231.1 net undrilled locations in the core of the Marcellus and Utica shale plays.

Northern Oil and Gas said that the acreage will complement its existing 183,000 acres of land across the Williston and Permian Basins.

Nick O’Grady – Northern Oil and Gas CEO said: “This transaction furthers our goal of becoming a national non-operated franchise with low leverage, strong free cash flow and a path towards returning capital to shareholders. With this transaction, we expect increased opportunities to efficiently allocate capital and diversify risk, our commodity mix and geographic footprint.

“Coupled with stable future development, these assets are expected to provide, at current strip prices, an average 18% free cash flow yield on the investment over a multiyear period. With these estimates, Northern is expected to produce increased free cash flow providing opportunities for growth, shareholder returns, and continued deleveraging.”

The transaction, which is subject to customary closing conditions, is likely to be closed in April 2021.