Northern Oil and Gas Inc. on Sept. 10 made its first acquisition outside of the Williston Basin, where the company touts itself as being the largest nonoperator.

In a company release, Northern said it acquired nonoperated interests within the Delaware Basin from an undisclosed seller. The deal includes acreage and proposed wells in New Mexico’s Lea County operated by EOG Resources Inc., a top Permian producer.

Based in Minnetonka, Minn., Northern invests in nonoperated minority working and mineral interests in oil and gas properties as part of its strategy as “the natural consolidator of nonoperated working interests,” according to Northern CEO Nick O’Grady.

However, after actively building data in the Permian Basin for two years, O’Grady said he now sees a window of opportunity opening up for expansion of its strategy outside of the Williston.

 

“The 2020 downturn in the energy sector has made the Permian Basin competitive for the first time, inclusive of acreage costs, on a full cycle return basis with our Williston Basin program,” he said in a statement on Sept. 10.

The Permian acquisition consists of interests in approximately 66 net acres, on which 1.1 initial net wells have been proposed. The proposed wells are expected to be spud in late 2020 and/or early 2021 and turned in line beginning in second-quarter 2021. Monthly peak production of approximately 1,400 boe/d is projected from the initial wells. 

Total acquisition costs plus the initial development costs on the proposed wells are expected to be approximately $11.9 million. Northern expects approximately 54% of this capital to be incurred in 2020, all of which would be within the company’s previously stated 2020 capital budget.

Northern Oil and Gas Map of Permian Basin Acquisition Acreage
Northern Oil and Gas Inc. Sept. 10, 2020 Investor Presentation

Upon turning the proposed wells in line, Northern said the assets will be accretive to EV / EBITDA, corporate return on capital employed, earnings per share and free cash flow metrics in 2021 and beyond.

“Returns matter: the capital markets continue to ignore our stellar capital allocation process that has led to the highest return on capital employed of any public oil-centric E&P,” O’Grady said on Sept. 10 adding that with the company’s first Permian deal, “we continue to carefully invest countercyclically in high return future cash flows and inventory to capture upside, while ongoing operations continue to improve.”

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