Vital Energy Inc. and Northern Oil and Gas Inc. (NOG) are teaming up to acquire the assets of Forge Energy II Delaware LLC, an EnCap Investments LP portfolio company based in the Permian Basin, in a $540 million all-cash transaction.
The Forge assets in the Delaware sub-basin span nearly 42,000 gross acres across Pecos, Reeves and Ward counties in West Texas.
Under the deal, which is slated to close by the end of June, Vital would acquire a 70% operating interest in the assets for $378 million, with NOG taking a 30% non-operated interest for $162 million.
The assets would add current production of about 9,500 boe/d (65% oil) net to Vital and 3,400 boe/d (79% oil) net to NOG. They contain about 100 gross high-value oil locations in the 2nd and 3rd Bone Spring and Wolfcamp A formations with an average breakeven West Texas Intermediate oil price of $50/bbl. The assets also contain “potential upside in additional stacked formations,” according to Tulsa, OK-based Vital.
"This accretive acquisition is attractively priced and significantly expands Vital Energy’s Permian focus, adding a core operating area in the Delaware Basin," said Vital CEO Jason Pigott.
Vital plans to fund the acquisition through the use of its credit facility, management said.
The transaction would expand Vital’s Permian leasehold to about 198,000 net acres. Vital plans to operate one rig on the acquired properties, bringing the company’s total Permian rig count to three.
“This disciplined approach will keep production levels on the asset relatively flat while maximizing free cash flow,” Vital management said. “Additional details outlining development plans for the asset and impact to full-year 2023 guidance will be provided upon closing of the transaction.”
In the second half of the year, NOG is expecting to outlay about $17 million of capital expenditures at the acquired assets, and for its share of production to average over 3,750 boe/d.
EnCap has been “among the most active sellers” amid a rush of private equity exits in the Lower 48 upstream segment, said analysts at Enverus Intelligence Research in a recent report on mergers and acquisitions (M&A) in the sector.
In the largest U.S. upstream M&A deal to date this year, Ovintiv Inc. last month announced a nearly $4.3 billion acquisition of three EnCap-owned producers in the Permian’s Midland sub-basin.
