NOG Announces Second Joint Acquisition with Vital Energy in the Delaware Basin

Rhea-AI Summary

Northern Oil and Gas (NYSE: NOG) has announced a joint acquisition with Vital Energy of assets from Point Energy Partners for $1.1 billion. NOG will acquire a 20% stake for $220 million, primarily in Ward County, TX. The assets include:

• >4,500 Boe per day production (>75% oil)
• ~4,000 net leasehold and mineral acres
• Expected cash flow >$75 million in next 12 months
• Free cash flow >$40 million expected

The transaction, effective April 1, 2024, is expected to close in late Q3 2024. NOG anticipates Q4 2024 production of >3,250 Boe per day and $11.3 million in capital expenditures. The acquisition will be funded through operations, cash on hand, and credit facility borrowings.

Positive

• Acquisition of high-quality assets with strong production (>4,500 Boe per day, >75% oil)
• Expected cash flow >$75 million in next 12 months, representing a transaction multiple <2.9x
• Significant free cash flow of >$40 million expected in next 12 months
• Partnership with Vital Energy for aligned development strategy
• Assets located in NOG's area of interest, close to existing Delaware Basin holdings

Negative

• Increase in debt due to partial funding through credit facility borrowings
• Capital expenditure of $11.3 million expected for Q4 2024

Insights

Financial Analyst

This acquisition marks a significant strategic move for Northern Oil and Gas (NOG), demonstrating its commitment to expanding its presence in the lucrative Delaware Basin. The $220 million investment for a 20% stake in the Point Assets is a calculated risk that could yield substantial returns.

The deal's structure is particularly noteworthy. With an expected cash flow from operations of $75 million in the next twelve months and a projected free cash flow of $40 million, the transaction multiple of <2.9x is remarkably attractive. This suggests that NOG is acquiring these assets at a discount relative to their potential value, which could significantly boost the company's financial performance.

The production profile of >4,500 Boe per day, with over 75% oil, is impressive and aligns well with NOG's existing portfolio. The high oil content is particularly valuable in the current market environment, where oil prices have been relatively strong. This acquisition could potentially increase NOG's overall production by approximately 5-7%, based on their current output levels.

Investors should pay close attention to how this acquisition affects NOG's debt levels and balance sheet strength. While the company plans to fund the purchase through a combination of cash flow, cash on hand and credit facility borrowings, it's important to monitor how quickly they can pay down any additional debt incurred from this transaction.

Overall, this deal appears to be a shrewd move by NOG, potentially providing immediate accretion to per-share metrics and shareholder returns. However, the success of this investment will ultimately depend on the execution of the development plan and the stability of oil prices in the coming years.

Oil and Gas Industry Expert

The acquisition of a 20% stake in the Point Assets represents a strategic expansion for NOG in the Delaware Basin, a prime area within the larger Permian Basin known for its rich oil and gas reserves. This move is particularly noteworthy for several reasons:

• The assets' location in Ward County, Texas, is highly advantageous. This area is known for its prolific production and relatively low operating costs, which could contribute significantly to NOG's bottom line.
• The acquisition includes 26.4 net producing wells and 1.6 net wells-in-process, providing immediate production uplift. More importantly, the ~12.1 low-breakeven net undeveloped locations offer substantial future growth potential.
• The high oil content (>75%) in the production mix is a significant advantage, as oil typically commands higher prices and better margins compared to natural gas.

The partnership with Vital Energy as the operator is a smart move. Vital has a strong track record in the Delaware Basin and this collaboration could lead to operational efficiencies and cost savings. The alignment of interests between NOG and Vital should facilitate smooth decision-making and optimal asset development.

However, investors should be aware of potential risks. The Delaware Basin is a highly competitive area and drilling and completion costs can be substantial. The success of this investment will depend on maintaining operational efficiency and managing costs effectively. Additionally, the assets' performance will be subject to oil price volatility, which could impact returns in the short to medium term.

In conclusion, this acquisition appears to be a well-calculated move that could significantly enhance NOG's position in one of the most productive oil and gas regions in the United States. The key to success will lie in efficient execution and prudent capital allocation in developing these assets.

HIGHLIGHTS

• Joint acquisition with Vital Energy, Inc. (“Vital”) of certain assets (the “Point Assets”) of Point Energy Partners, LLC (“Point”), a Vortus Investments company (“Vortus”) for $1.1 billion
• NOG purchasing a 20% undivided stake in the Point Assets (the “Acquired Assets”) for $220 million in cash (all numbers below are net to NOG)
• The Acquired Assets include >4,500 Boe per day (2-stream, excluding NGLs, >75% oil) of recent production and ~4,000 net leasehold and mineral acres, located primarily in Ward County, TX
• Cash flow from operations on the Acquired Assets expected to be >$75 million in the next twelve months (starting 10/1/2024), based on recent strip prices, representing a transaction multiple on the unadjusted purchase price of <2.9x
• Strong free cash flow profile on the Acquired Assets with >$40 million expected over the next twelve months (starting 10/1/2024). See “Non-GAAP Financial Measures” below
• Significant purchase price reduction expected at closing due to April 2024 effective date
• Transaction to be funded by cash flow from operations, cash on hand and borrowings under NOG’s Senior Secured Revolving Credit Facility

MINNEAPOLIS--(BUSINESS WIRE)-- Northern Oil and Gas, Inc. (NYSE: NOG) (the “Company” or “NOG”) today announced that it has entered into a definitive agreement to acquire a 20% undivided stake in the Point Assets in the Delaware Basin, in partnership with Vital Energy, Inc., for a purchase price net to NOG of $220.0 million in cash, subject to typical closing adjustments.

The Acquired Assets are primarily located in Ward County, Texas and include approximately 4,000 net leasehold and mineral acres, 26.4 net producing wells, 1.6 net wells-in-process and ~12.1 low-breakeven net undeveloped locations. Upon closing, the operator of the assets will be Vital, with NOG participating in development pursuant to cooperation and joint operating agreements entered into with Vital in connection with the acquisition.

Recent production on the Acquired Assets was >4,500 Boe per day (2-stream, >75% oil). For the fourth quarter of 2024, NOG expects average production of >3,250 Boe per day (2-stream, >75% oil) and approximately $11.3 million of capital expenditures.

The effective date for the transaction is April 1, 2024, and NOG expects to close the transaction in the late third quarter of 2024. As part of the transaction, NOG has placed a $22.0 million deposit in escrow prior to closing. The obligations of the parties to complete the transactions contemplated by the purchase agreement are subject to the satisfaction or waiver of customary closing conditions.

MANAGEMENT COMMENTS

“This transaction further emphasizes NOG’s position as the most reliable and consistent partner for the purchase and development of high-quality properties,” commented Nick O’Grady, NOG’s Chief Executive Officer. “We are very excited to again work alongside our partners at Vital to develop the Point Assets with strong alignment and cooperation. These assets will be easily funded on-balance sheet and their strong cash flows should provide for immediate growth and significant accretion to per share metrics, shareholder returns and the potential for compounding of growth in the years to come.”

“The Point Assets sit directly in our area of interest and close to our existing Delaware holdings,” commented Adam Dirlam, NOG’s President. “With our partners at Vital, we expect to responsibly develop these assets with an aligned plan that will deliver strong returns for our respective stakeholders over the coming years.”

ADVISORS

Kirkland & Ellis LLP is serving as NOG’s legal counsel.
Houlihan Lokey served as financial advisor to Vital.
Gibson Dunn & Crutcher LLP is serving as legal counsel to Vital.
Jefferies LLC served as financial advisor to Point and Vortus.
Akin Gump Straus Hauer & Feld LLP is serving as legal counsel to Point and Vortus.

ABOUT NOG

NOG is a real asset company with a primary strategy of acquiring and investing in non-operated minority working and mineral interests in the premier hydrocarbon producing basins within the contiguous United States. More information about NOG can be found at www.noginc.com.

NON-GAAP FINANCIAL MEASURES

This release includes certain financial measures that are not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), including free cash flow. These non-GAAP financial measures are not measures of financial performance prepared or presented in accordance with GAAP and may exclude items that are significant in understanding and assessing our financial results. Therefore, these measures should not be considered in isolation, and users of any such information should not place undue reliance thereon. NOG believes the presentation of these metrics may be useful to investors because it supplements investors’ understanding of its operating performance by providing information regarding performance that excludes items it believes do not directly affect its core operations. NOG defines free cash flow as (i) cash flows from operations before changes in working capital and other items, less (ii) capital expenditures, excluding non-budgeted acquisitions and changes in accrued capital expenditures and other items. From time-to-time NOG provides forward-looking free cash flow estimates or targets; however, NOG is unable to provide a quantitative reconciliation of the forward-looking non-GAAP measure to its most directly comparable forward-looking GAAP measure because management cannot reliably quantify certain of the necessary components of such forward looking GAAP measure. The reconciling items in future periods could be significant.

SAFE HARBOR

This press release contains forward-looking statements regarding future events and future results that are subject to the safe harbors created under the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”). All statements other than statements of historical facts included in this release regarding NOG’s financial position, common stock dividends, business strategy, plans and objectives of management for future operations, industry conditions, capital expenditures, production, cash flow, hedging and other matters are forward-looking statements. When used in this release, forward-looking statements are generally accompanied by terms or phrases such as “estimate,” “guidance,” “project,” “predict,” “believe,” “expect,” “continue,” “anticipate,” “target,” “could,” “plan,” “intend,” “seek,” “goal,” “will,” “should,” “may” or other words and similar expressions that convey the uncertainty of future events or outcomes. Items contemplating or making assumptions about actual or potential future sales, production, drilling locations, capital expenditures, market size, collaborations, and trends or operating results also constitute such forward-looking statements.

Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond NOG’s control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following: changes in crude oil and natural gas prices, the pace of drilling and completions activity on NOG's properties and properties pending acquisition, infrastructure constraints and related factors affecting our properties, cost inflation or supply chain disruptions, NOG's ability to acquire additional development opportunities, integration and benefits of property acquisitions, or the effects of such acquisitions on NOG’s cash position and levels of indebtedness, the projected capital efficiency savings and other operating efficiencies and synergies resulting from NOG’s acquisition transactions, changes in NOG's reserves estimates or the value thereof, general economic or industry conditions, nationally and/or in the communities in which NOG conducts business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, increasing attention to environmental, social and governance matters, NOG's ability to consummate any pending acquisition transactions (including the transactions described herein), other risks and uncertainties related to the closing of pending acquisition transactions (including the transactions described herein), NOG's ability to raise or access capital, cyber incidents, changes in accounting principles, policies or guidelines, events beyond NOG’s control, including a global or domestic health crisis, acts of terrorism, political or economic instability or armed conflict in oil and gas producing regions or elsewhere, and other economic, competitive, governmental, regulatory and technical factors affecting NOG's operations, products and prices.

NOG has based these forward-looking statements on its current expectations and assumptions about future events. While management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond NOG's control. Accordingly, results actually achieved may differ materially from expected results described in these statements. Forward-looking statements speak only as of the date they are made. NOG does not undertake, and specifically disclaims, any duty to update or revise any forward-looking statements to reflect events or circumstances after the date of such statements, except as may be required by applicable law or regulation.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240725689562/en/

Evelyn Leon Infurna

Vice President of Investor Relations

(952) 476-9800

ir@northernoil.com

Source: Northern Oil and Gas, Inc.

FAQ

What is the value of NOG's stake in the Point Energy Partners acquisition?

NOG is acquiring a 20% undivided stake in the Point Assets for $220 million in cash.

When is the expected closing date for NOG's acquisition of Point Energy Partners assets?

The transaction is expected to close in the late third quarter of 2024.

What is the expected production from the acquired assets for NOG in Q4 2024?

NOG expects average production of >3,250 Boe per day (2-stream, >75% oil) in Q4 2024.

How will NOG fund the acquisition of Point Energy Partners assets?

The acquisition will be funded through cash flow from operations, cash on hand, and borrowings under NOG's Senior Secured Revolving Credit Facility.

What is the expected cash flow from the acquired assets for NOG?

NOG expects cash flow from operations on the Acquired Assets to be >$75 million in the next twelve months (starting 10/1/2024).