• $102.2 million of bolt-on acquisitions in the Delaware Basin
• Includes 2,900 core Permian acres in Reeves, Lea and Eddy Counties
• 3,700 Boe per day (two-stream) expected in the second half of 2021
• Forward 1-year cash flow from operations expected to exceed $40 million at current strip pricing (assuming August 1, 2021 closing), or approximately 2.5x the purchase price
• Over $100 million of cumulative free cash flow expected from the assets through 2025
• Transaction, inclusive of contemplated financings, expected to be accretive to TEV / EBITDA, Debt / EBITDA, free cash flow and cash flow per share over a multi-year period
• Management intends to submit a request for a 50% increase to the quarterly dividend to $0.045 per share to Northern’s Board of Directors upon closing of the transactions
• Excluding these acquisitions, Northern’s preliminary April and May 2021 average oil production estimated to exceed 31,750 Bbl per day, above internal expectations

PERMIAN BASIN ACQUISITIONS

Northern Oil and Gas has entered into three definitive agreements to acquire non-operated interests across approximately 2,900 net acres located in the heart of Reeves County, Texas and Lea and Eddy Counties, New Mexico for a combined purchase price of $102.2 million.

May 2021 production on the assets was approximately 2,200 Boe per day (2-stream, 66% oil) and Northern expects average production of 3,700 Boe per day in the second half of 2021, assuming an August 1 closing. The estimated development plan on the properties over the next several years is expected to grow production to approximately 6,500 Boe per day, assuming current strip prices. Under this development scenario, Northern forecasts the assets to generate over $100 million of cumulative free cash flow through 2025.

The assets include 5.3 net producing wells, 5.0 net wells in process and an additional 23.1 net undrilled locations ascribed to the core zones including the Wolfcamp A, Wolfcamp B and 1st through 3rd Bone Springs. The assets are operated primarily by Mewbourne Oil Company, Colgate Energy, ConocoPhillips and EOG Resources.

The effective date for the majority of the transaction value is April 1, 2021. Northern consummated the acquisition of a portion of the assets in June and expects to close on the acquisition of the remaining assets in the third quarter of 2021. Northern estimates approximately $35 million of capital expenditures on the combined properties to be incurred in 2021, inclusive of estimated purchase price adjustments at closing of the acquisitions.

TRANSACTION FINANCING

The pending acquisition is expected to be funded through a combination of a common equity offering and, to the extent necessary, cash on hand and/or borrowings under Northern’s Senior Secured Credit Facility and the transactions are anticipated to be immediately leverage accretive.

“These assets represent the trifecta,” commented Adam Dirlam, Chief Operating Officer of Northern. “We are acquiring high return core properties with top operators, assets with significant inventory and growth potential, and engaging in a transaction expected to meaningfully impact Northern’s free cash flow profile. We expect to generate over $100 million in free cash flow from the assets through 2025, based on current strip prices.”

“Consistent with our fundamental approach to growing our enterprise, these transactions achieve all of our stated goals,” commented Nick O’Grady, Chief Executive Officer of Northern. “These deals are immediately accretive to our enterprise and all relevant per share statistics. As promised, alongside a reduction in leverage ratios, it means an acceleration of our dividend strategy to shareholders, while augmenting our inventory and growth profile.”

CAPITAL EXPENDITURES 

Northern has experienced significantly improved capital efficiencies year to date, and post-transaction, capital expenditures are expected to increase by only $15–20 million, despite approximately $35 million of development capital on the acquired properties. The implied $15–20 million reduction of Northern’s previous capital expenditure guidance, combined with the additional cash flows from the acquired properties, should serve to bolster Northern’s estimated free cash flow profile at current strip prices.

KeyFacts Energy Industry Directory: Northern Oil and Gas