SM Energy and Northern Oil and Gas announce $2.55bn acquisition of Uinta Basin assets

SM Energy and Northern Oil and Gas (NOG) have entered into a significant agreement to acquire oil and gas assets in the Uinta Basin, Utah, from XCL Resources in a combined transaction valued at $2.55 billion.

The deal involves the acquisition of assets owned by entities affiliated with XCL Resources, a private firm supported by EnCap Investments and Rice Investment Group. Northern Oil and Gas will acquire an undivided 20% interest in the assets for $510 million, while SM Energy will purchase the remaining 80% for $2.04 billion. SM Energy will assume operational responsibilities for the assets currently managed by XCL Resources.

The Uinta Basin is recognized for its extensive oil resources and has been identified as one of the fastest-growing oil regions in the United States. The acquisition encompasses approximately 37,200 net acres for SM Energy and about 9,300 acres for Northern Oil and Gas, primarily spread across Uintah and Duchesne Counties.

SM Energy and Northern Oil and Gas secure a $2.55 billion deal to acquire strategic oil and gas assets in Utah’s Uinta Basin, enhancing their production capabilities and asset portfolio.

Nick O’Grady, CEO of Northern Oil and Gas, commented on the strategic acquisition: “The Uinta Basin has emerged as one of the best and fastest-growing oil resources in the United States, and SM has a track record as one of our best and most responsible operators. We look forward to working with them for many years to come. We believe this transaction will be the most accretive in our history, benefiting per share net profit and free cash flow both immediately and over time.”

SM Energy highlighted the basin’s potential, noting its multiple layers of oil-rich formations which promise strong well performance and substantial growth prospects. The company plans to leverage its experience in developing multiple geological layers to enhance value across up to 17 different sections within the assets.

Herb Vogel, president and CEO of SM Energy, emphasized the strategic fit of the acquisition: “Our differentiated technical team has again demonstrated what sets us apart, having identified a unique opportunity to add top-tier assets with significant upside for a reasonable multiple. We believe that this transaction checks the boxes for our acquisition criteria, and we expect to demonstrate value creation through performance optimization, inventory expansion, and growth in adjusted free cash flow.”

Post-acquisition, SM Energy’s production is expected to rise to approximately 195 thousand barrels of oil equivalent per day (MBoed), with crude oil making up over 50% of its production mix by 2025. The deal also includes around 390 net drilling locations, which extends SM Energy’s inventory life by more than two years to over 12 years, and adds approximately 107 million barrels of oil equivalent in preliminary proved reserves, representing an 18% increase in its estimated net proved reserves.

The acquisition, with an effective date of May 1, 2024, is anticipated to close in September 2024, subject to customary closing conditions.

This strategic acquisition by SM Energy and Northern Oil and Gas marks a pivotal development in the energy sector, potentially setting a new standard for investments and operations in the region. By consolidating their presence in the Uinta Basin, both companies are poised to capitalize on the area’s rich resources and favorable growth dynamics, demonstrating a robust model for industry advancement.