Northern Oil and Gas has signed an agreement to acquire Reliance Industries’ non-operated stakes in certain upstream assets in the Marcellus shale play in the Appalachian Basin, US, for $250m.
Under the deal, Northern Oil and Gas will pay $175m in cash and issue approximately 3.25 million warrants to Reliance Industries, allowing the latter to buy 3.25 million common shares of Northern Oil and Gas over the next seven years at a price of $14 per share.
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Reliance Industries is selling the assets through its fully-owned subsidiary, Reliance Marcellus.
The assets considered for the sale are in south-western Pennsylvania and are currently operated by various affiliates of EQT.
Northern Oil and Gas expects the deal to complement its existing 183,000 Williston and Permian net acres with 64,000 net acres in Appalachia, while extending its non-operating model to Appalachia.
From operations during 2021, Northern Oil and Gas expects the assets to provide unhedged cash flow of nearly $55-60m with its share of the estimated capital expenditure budget being $25-30m.
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By GlobalDataNorthern Oil and Gas CEO Nick O’Grady said: “Coupled with stable future development, these assets are expected to provide, at current strip prices, an average 18% free cash flow yield on the investment over a multiyear period.
“With these estimates, Northern is expected to produce increased free cash flow, providing opportunities for growth, shareholder returns, and continued deleveraging.”
Subject to the meeting of customary closing conditions, the deal is scheduled to be completed in April 2021.
Northern chief financial officer Chad Allen said: “The acquisition is expected to be funded through a combination of equity and debt financings and is anticipated to be leverage neutral on a trailing basis and leverage accretive on a forward basis.
“Importantly, the contemplated transactions are expected to improve liquidity, remove all near-term maturities and significantly improve free cash flow on a multiyear period.”
