SM Energy, Northern Oil and Gas partner in $2.6 billion XCL Resources shale acquisition in Utah

Elizabeth Elkin and David Carnevali, Bloomberg June 27, 2024

(Bloomberg) – SM Energy Co. and Northern Oil and Gas Inc., two U.S. shale drillers, agreed to acquire assets in Utah’s Uinta basin for about $2.6 billion in cash, the latest in a string of oil and gas acquisitions as operators look to scale up.

SM said Thursday it will pay a net $2.04 billion for an 80% stake in the assets, which are currently owned by XCL Resources LLC. Northern Oil will pay $510 million for a 20% interest.

The shale takeover comes as cash-flush U.S. oil and gas companies continue to consolidate while also seeking to refresh their drilling inventory.

The latest transaction also marks another big exit by private equity investors from an energy company. XCL is backed by EnCap Investments LP and Rice Investment Group.

A portfolio company of EnCap also agreed earlier this month to sell assets in the Permian Basin to Matador Resources Co. for $1.9 billion. Warburg Pincus, a buyout firm, is seeking a buyer for oil and gas explorer Citizen Energy in a deal that could fetch almost $2.5 billion, people familiar with the matter said this week. 

Quantum Capital Group, another private equity player, has agreed to buy Caerus Oil and Gas from a group of investment firms, people familiar with that transaction said this week — a relatively rare example of a so-called secondary buyout in U.S. oil and gas.

SM operates in the Eagle Ford and Midland basins in Texas, and the XCL transaction gives it an entry into the Uinta, an up-and-coming region that produces a waxy kind of oil that’s used to make lubricants.

SM will be the operator of the XCL assets following the completion of the deal, which was first reported Wednesday by Bloomberg News. The assets comprise about 37,200 net acres.

Shares of SM were down 4.5% in premarket trading at 8:38 a.m. in New York. Northern Oil fell 1.2%.

Kirkland & Ellis LLP is SM’s legal counsel on the deal, Jefferies LLC is XCL’s financial adviser and Vinson & Elkins LLP is its legal counsel. RBC Capital Markets is Northern Oil’s financial adviser.

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