EON Resources Inc. and Pogo Royalty LLC have entered into an agreement that will kill $40 million in EON debts and obligations—while adding to the company’s interests in its Permian Basin Grayburg-Jackson oil field property.

The multifaceted deal, which EON termed a balance sheet restructuring, involves EON paying a combination of cash and equity compensation to Pogo, which in turn will reduce certain liabilities and obligations owed to it by EON.

Under the terms of the deal, EON will pay Pogo $22 million cash and issue 3 million Class A common stock shares. EON will acquire a 10% overriding royalty interest (ORRI) in the Grayburg-Jackson oil field from Pogo.

The ORRI is valued at $14 million and generates proceeds of approximately $200,000 per month, EON said.

Pogo will reduce liabilities and debt owed by EON by about $18 million. Pogo will also eliminate $24 million of redemption value for shares owned by Pogo.

EON also agreed to repurchase of 100% preferred units Pogo held in an EON subsidiary. A promissory note to Pogo with an original principal of $15 million will also be retired.

The agreement gives EON—originally a special purpose acquisition corporation, or SPAC, known as HNR Acquisition Corp.—an off-ramp from a constrained balance sheet.

"The overhang from our De-SPAC transaction in terms of one-time expenses, and a very complicated and burdened balance sheet, has restricted our ability to really unlock the underlying potential and value of our assets,” Dante Caravaggio, president and CEO of EON, said in a Feb. 11 press release.

In 2023, EON Resources bought its Grayburg-Jackson waterflood assets in the Permian’s Northwest Shelf in Eddy County, New Mexico. The assets included 13,700 contiguous leasehold acres, 342 producing wells and 207 injection wells on federal and state leases in the Permian’s Northwest Shelf. The property holds proven reserves of approximately 15.4 MMbbl of oil and 3.5 Bcf of natural gas.

"Over the past 15 months, EON has continued to develop its Grayburg-Jackson Oil Field by reinvesting available cash flow into field enhancements," Caravaggio said.

Carvaggio said EON is looking to finance the purchase through a range of options and is in talks with various financial advisers.

In early December, EON entered a $22.5 million letter of intent with Enstream Capital Management for well completion funding. EON said then it planned to allocate the funds toward developing 45 wells, using low-cost workovers, on its Eddy County leasehold. The company also said the money would be used to purchase an ORRI.

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