Northern Oil and Gas Inc. (NOG) made a bolt-on acquisition of core northern Delaware Basin properties for an initial purchase price of $157.5 million, the company said in a Sept. 30 release.

“The northern Delaware Basin continues to be a key target for our consolidation efforts,” NOG President Adam Dirlam commented in the release.

Based in Minnetonka, Minn., NOG aims to be the go-to resource for operators that want to offload nonoperated working interests in leasehold. Originally focused in the Williston Basin, the company has also expanded into the Marcellus Shale and Permian Basin through a series of acquisitions.

The acquisition announced on Sept. 30 includes certain nonoperated working interests in the core of the Delaware Basin from Alpha Energy Partners. The interests are comprised of 2,800 acres, 9.6 net producing wells, 2.8 net AFEs and wells-in-process in New Mexico’s Lea and Eddy counties and Loving County, Texas.

NOG anticipates $32 million of additional capex over each of the next three years on the Alpha asset.

Analysts with Piper Sandler & Co. estimate NOG is paying roughly 3.1x 2023 cash flow and will generate $46.5 million to $54.3 million of unhedged cash flow in 2023 at strip.

“The acquisition brings <$40 breakeven inventory in the core of the Wolfcamp and Bone Spring … NOG remains our favorite idea in SMID E&P,” Mark A. Lear, senior research analyst at Piper Sandler, wrote in an Oct. 3 research note.

Mewbourne Oil is the primary operator of the Alpha asset, which also includes approximately 21.2 net undeveloped locations. Other operators include ConocoPhillips Co. and EOG Resources Inc.

“This asset has some of the highest quality, lowest-cost inventory we have acquired, and is leveraged to NOG’s top operator in the Permian,” Dirlam added in his statement.

Hart Energy September 2022 - Northern Oil and Gas Acquires Core Northern Delaware Basin Bolt-on from Alpha Energy Partners - Locator Map
The acquired assets included a highly economic, low breakeven inventory in the core zones of the Wolfcamp and Bone Spring plus additional unbooked inventory in the Avalon and lower Wolfcamp zones, NOG said. (Source: Northern Oil and Gas Inc.)

The Alpha acquisition follows NOG’s purchase of nonoperated Permian properties in Howard County, Texas, from Laredo Petroleum Inc. in August for $110 million. Also, earlier this year, NOG closed a $406.5 million acquisition of Veritas Energy’s nonop position in the Permian Basin, marking the company’s largest acquisition to date.

NOG expects to fund the Alpha acquisition with cash on hand, operating free cash flow and borrowings under the company’s revolving credit facility.

In its release on Sept. 30, NOG said it may deliver Alpha Energy Partners up to $22.5 million of additional cash consideration depending on the average front month NYMEX WTI pricing during the first six months of 2023. The additional consideration, if any, would be paid in third-quarter 2023, according to the release.

“NOG continues to execute on creating shareholder value as a proven, reliable and disciplined consolidator of working interests,” commented NOG CEO Nick O’Grady in the release. “These assets are squarely in our core focus area and are poised to deliver substantial growth over the coming years, while delivering significant cash flow to bolster shareholder returns.”

Citigroup Global Markets served as financial adviser to NOG. Kirkland & Ellis LLP is serving as the company’s legal adviser. TPH & Co., the energy business of Perella Weinberg Partners, served as financial adviser to Alpha Energy Partners. Holland & Knight is serving as Alpha’s legal adviser.

Editor’s note: This story was updated at 1:50 p.m. CT on Oct. 3 to add analyst commentary.

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