Wednesday, 3 July, 2024 / Edition 14

With the July 4th holiday coming up, my wife and I are looking forward to some quality family time together with our three daughters, who are coming home from Dallas and New York to Houston. Hope those of you in the U.S. and your loved ones get to enjoy the holiday, too!

We cover more M&A activity this week, in addition to a second effort by Aramco to grow its LNG presence in the U.S. Learn more about my M&A predictions and the year’s top deals thus far at AAPG Academy’s webinar on 16 July. I will be speaking with expert Monica Enfield, managing director at Energy Intelligence, about deal flow, the deal environment, and what may lie ahead. 

Now, let’s look at some of this week’s biggest upstream developments…

Shangyou Nie

Editor, Well Read

North America Shale Deals Continue Beyond the Permian

3rdtimeluckystudio/Shutterstock.com

SM Energy Co. and Northern Oil and Gas (NOG) announced that they will jointly acquire XCL Resources’ Uinta Basin assets. SM Energy Co. will pay $2 billion to acquire 80 percent undivided interest. NOG will pay $500 million to acquire the remaining non-operating 20 percent.

Deal details:

• SM Energy Co. and NOG will fund the acquisition with a combination of cash and debt.

• Buyers are expecting to close the deal in Q3 or early Q4.

Buyer specs:

• SM Energy Co. is a Denver-based public company with a $5 billion market cap. It has acreage in the Permian and Eagle Ford Basins in Texas and the Uinta Basin in Utah.

• NOG is a Minnesota-based public company with a market cap of $3.8 billion. It claims to be America’s largest, publicly traded non-operating company, with assets in the Williston, Permian, and Appalachian basins.

• NOG has 300,000 acres and 10,000 wells operated by more than 100 operators.

Seller specs:

• XCL Resources is a Houston-based private company. It has received financial backing from private equity firm EnCap Investments since 2018.

• XCL Resources is a single-basin pure play in the Uinta Basin.

• This is the second sale for EnCap Investments in June; it previously sold $2 billion in Permian assets to Dallas-based Matador Resources Co.

Motivating factors for this deal:

• SM Energy Co. wants to leverage its technical expertise to fully realize the value of the stack pay from XCL Resources’ Uinta Basin assets.

• NOG has completed $4 billon in acquisitions since 2018, but the XCL Resources acquisition is its largest and most important.

After the acquisition closes, SM Energy Co. will add:

• 37,000 net acres (99 percent operated), representing a 14 percent acreage increase

• 43,000 boed (85 percent oil) to increase its estimated 2025 net production to 195,000 boed, 52 percent oil, from the previous 45 percent oil

• 107 million boe of proven reserves and 390 net locations with break-evens at $43–$57/barrel

• Two years to its drilling inventory, making it more than 12 years

• More than $2 billion to its enterprise value, which will reach $8.8 billion

NOG benefits post-deal: NOG will enter a new basin and add 9,300 net acres and 10,500 boed net production, with 85 percent oil.

What to watch:

• The ongoing M&A wave in North America will likely continue beyond the Permian Basin. 

• Which other private equity firms might be next to cash in on their oil and/or gas investments?

A message from AAPG Academy & Well Read

Join AAPG Well Read editor, Shangyou Nie, and Energy Intelligence's Monica Enfield as they discuss the year's top upstream mergers and acquisitions, plus give their predictions on what lies ahead in the deal environment for the remainder of 2024 and into 2025.

Aramco Continues to Deepen its LNG Investment in the USA

Ayman Zaid/Shutterstock.com

Aramco and Sempra recently announced that they have signed a non-bidding Heads of Agreement for a 20-year sale and purchase agreement (SPA) for 5 mtpa LNG offtake rights from Port Arthur Phase 2.

The HoA also highlights the potential for Aramco to take 25 percent equity in Phase 2 of the Port Arthur LNG expansion project.

Catch up fast:

• Both sides are working on a bidding agreement with terms outlined in the HoA.

• “This agreement is a major step forward in Aramco’s strategy to become a leading LNG player,” said Nasir K. Al-Naimi, Aramco’s upstream president.

• This is Aramco’s second announcement in one month around efforts to grow in the U.S. LNG market.

About Sempra:

• Sempra is a San Diego-based public company with a market cap of $48 billion. It focuses on energy infrastructure investments with three subdivisions, Sempra California, Sempra Texas, and Sempra Infrastructure.

• Sempra Infrastructure is developing four LNG projects, including Port Arthur LNG in Texas and Cameron LNG in Hackberry, Louisiana.

• Sempra Infrastructure is also developing two projects on the Pacific coast of Mexico: Vista Pacifico LNG in Sinaloa and Energia Costa Azul LNG Phase 2 in Baja California.

About Port Arthur LNG:

• Gas offtake partners for Phase 1 include ConocoPhillips, RWE, PKN ORLEN, INEOS, and Engie. COP has 20-year, 5 mtpa LNG offtake rights for Phase 1.

• FID for Phase 1 was taken on 20 March 2023 for the $13 billion project. It is being constructed by Bechtel and will have two trains with 13.5 mtpa capacity.

• First gas for Trains 1 and 2 is expected in 2027 and 2028, respectively.

• PA LNG has the potential to expand to eight trains with more than 50 mtpa in potential capacity.

What to watch:

• Who will be the next international investor to join Sempra in its LNG projects?

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✉️ To get in touch with Shangyou, send an email to editorial@aapg.org.