Highlights 

• NOG enters into agreement to acquire a 36.7% working interest in a stacked pay, six-zone development project (the “Mascot Project”) in the core of the Midland Basin for $330 million
• Acquisition includes producing properties and associated midstream assets, plus 62 gross in-process and future wells in Midland County, Texas, with sub-$40 per barrel average breakevens
• Average production of 6,450 Boe per day (2-stream, ~80% oil) expected for 2023
• Clear line of sight to significant free cash flow generation with 22.8 net undeveloped and in-process locations, all scheduled to be developed over the next two years
  • ~$150 million of expected 2023 unhedged cash flow from operations at strip pricing as of October 13, 2022 (~2.2x transaction multiple)
  • ~$300 million of unlevered free cash flow expected through 2025 (inclusive of cash flows received from effective date but prior to closing)
• Transaction expected to be significantly accretive to key financial metrics
• Future wells will be developed under a joint operating agreement with defined controls and governance, providing strong alignment
• NOG has hedged a substantial portion of the expected production
• Acquisition to be financed with cash

Northern Oil and Gas this week announced an agreement to acquire properties in the core of the Midland Basin.

MIDLAND BASIN ACQUISITION

NOG has entered into a definitive agreement to acquire a 36.7% working interest in the Mascot Project from Midland-Petro D.C. Partners, LLC (“MPDC”) for a purchase price of $330 million in cash, subject to typical closing adjustments. NOG expects to fund the acquisition with cash on hand, operating free cash flow and borrowings from NOG’s revolving credit facility.

NOG expects production from the acquired properties to average ~4,400 Boe per day in Q1 2023 and ~6,450 Boe per day for full year 2023 (2-stream, ~80% oil).

The acquired assets are located in Midland County, Texas and include four all-depths contiguous drilling spacing units developed for long laterals, 12.1 net producing wells, 5.5 net wells-in-process and approximately 17.3 net undeveloped locations. The properties have incurred minimal legacy vertical drilling relative to typical Midland Basin properties. NOG is also acquiring a pro rata interest in the midstream assets and associated infrastructure, which represent approximately $36 million of the allocated value of the transaction. The Mascot Project is operated by Permian Deep Rock Oil Company, an affiliate of MPDC, which is a David H. Arrington-owned business based in Midland, Texas. NOG and MPDC have formulated a joint operating agreement with a plan to fully develop the units, completing the drilling project in 2024. Additional unbooked infill and secondary zones remain for future development.

The effective date for the transaction is August 1, 2022, and NOG expects to close the transaction in January 2023. 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.

“With this transaction, we showcase NOG’s expanding capabilities,” commented Nick O’Grady, NOG’s Chief Executive Officer. “Beyond just a consolidator of non-operated interests, NOG is proving itself to be an adept and preferred partner for the development of high-quality assets. This transaction carries a clear and strong development plan that should deliver substantial returns for our investors. Mr. Arrington and his team have dedicated over five years to developing this project, and we would like to thank him and his stellar operating team for the opportunity to help see it through.”

“This acquisition has unique properties versus almost any prior transaction NOG has done,” commented Adam Dirlam, NOG’s President. “As typical, it is focused on one of the highest quality regions in the U.S., but what differentiates this transaction is the surety of development timing and returns, with clear line of sight to turning valuable acreage into significant free cash flow, rapidly and efficiently.”

KeyFacts Energy Industry Directory: Northern Oil and Gas