EOG Resources (EOG), Yates Petroleum Enter $2.5B Merger Agreement
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EOG Resources, Inc. (NYSE: EOG) and Yates Petroleum Corporation announced definitive agreements under which EOG has agreed to combine with Yates Petroleum Corporation, Abo Petroleum Corporation, MYCO Industries, Inc. and certain other entities (collectively, Yates). Under the terms of this private, negotiated transaction, EOG will issue 26.06 million shares of common stock valued at $2.3 billion and pay $37 million in cash, subject to certain closing adjustments and lock-up provisions. EOG will assume and repay at closing $245 million of Yates debt offset by $131 million of anticipated cash from Yates, subject also to certain closing adjustments.
"This transaction combines the companies' existing large, premier, stacked-pay acreage positions in the heart of the Delaware and Powder River basins, paving the way for years of high-return drilling and production growth," said William R. "Bill" Thomas, Chairman and Chief Executive Officer of EOG. "We are excited by this unique opportunity to advance EOG's strategy of generating high-return growth by developing premium wells at low costs that enhance long-term shareholder value.
"Additionally we are thrilled to welcome Yates' 300 employees to the EOG family and look forward to continuing the important presence Yates has established in the community of Artesia, N.M."
Yates is a privately held, independent crude oil and natural gas company with 1.6 million net acres across the western United States. Since 1924, when it drilled the first commercial oil well on New Mexico state trust lands, Yates has amassed a rich acreage position across the western United States. Highlights of Yates' assets are summarized below:
- Production of 29,600 barrels of crude oil equivalent per day, net, with 48 percent crude oil
- Proved developed reserves of 44 million barrels of oil equivalent, net
- Delaware Basin position of 186,000 net acres
- Northwest Shelf position of 138,000 net acres
- Powder River Basin position of 200,000 net acres
- Additional 1.1 million net acres in New Mexico, Wyoming, Colorado, Montana, North Dakota and Utah.
EOG is the largest oil producer in the Lower 48, with average net daily production of 551 thousand barrels of crude oil equivalent and a reputation for technological leadership in the development of unconventional resource plays.
"EOG is our partner of choice as we look to extend Yates' 93-year legacy," said John A. Yates Sr., Chairman Emeritus of Yates Petroleum Corporation and son of founder Martin Yates Jr. "As we enter a new era of unconventional resource development, we are excited to join forces with another pioneering company like EOG."
Douglas E. Brooks, Chief Executive Officer of Yates Petroleum Corporation, added, "This is a tremendous opportunity to combine EOG's strong technical competencies with the enormous resource potential of the Yates acreage to create significant value for Yates and EOG shareholders alike."
Yates immediately adds an estimated 1,740 net premium drilling locations in the Delaware Basin and Powder River Basin to EOG's growing inventory of premium drilling locations, a 40 percent increase. A premium drilling location is defined by EOG as a direct after-tax rate of return of at least 30 percent assuming a $40 flat crude oil price. EOG plans to commence drilling on the Yates acreage in late 2016 with additional rigs added in 2017.
"Through this transaction, our premium drilling strategy is gaining added momentum. With improving well productivity and this newly enhanced resource base, our organization can generate further increases in returns and capital efficiency," Thomas said. "The combination enhances the size and quality of EOG's existing portfolio of oil resource plays."
Doubles Position in Delaware Basin and Adjacent PlaysYates has 186,000 net acres of stacked pay in the Delaware Basin in New Mexico that is highly prospective for the Wolfcamp, Bone Spring and Leonard Shale formations. This brings the combined company's total Delaware Basin acreage position to approximately 424,000 net acres, a 78 percent increase to EOG's existing holdings.
Additionally, Yates has 138,000 net acres on the Northwest Shelf in New Mexico that is prospective for the Yeso, Abo, Wolfcamp and Cisco formations. These shallow plays have the potential to contribute additional amounts of premium inventory with the application of EOG's advanced completion and precision targeting technologies and low cost structure. Along with EOG's existing acreage, the newly combined company will have 574,000 net acres in the Delaware Basin and Northwest Shelf. A summary of the acreage is listed below.
Delaware Basin and Northwest Shelf Acreage Summary
Expands Powder River Basin Acreage
The combination also adds 81,000 net acres from Yates in the core development area of the Powder River Basin that is prospective for the Turner Oil play. In total, Yates contributes 200,000 net acres in the Powder River Basin. This doubles EOG's total Powder River Basin acreage to 400,000 net acres. The enhanced acreage position has significant exploration potential for multiple stacked-pay formations.
Under the terms of the agreements, which were approved by the boards of directors of EOG and Yates, and the Yates stockholders, EOG will issue 26.06 million shares of common stock valued at $2.3 billion and pay $37 million in cash, subject to certain closing adjustments and lock-up provisions. EOG will assume and repay at closing $245 million of Yates debt offset by $131 million of anticipated cash from Yates, subject also to certain closing adjustments. Closing is anticipated in early October 2016, subject to customary closing conditions. Following the transaction closing, EOG intends to maintain Yates' office in Artesia, N.M., to support the newly combined operation.
Wells Fargo Securities, LLC acted as exclusive financial and technical advisor to Yates Petroleum Corporation, Abo Petroleum Corporation and MYCO Industries, Inc. for this transaction. Thompson & Knight LLP, Modrall Sperling Law Firm and Kemp Smith LLP acted as legal advisors to Yates Petroleum Corporation, Abo Petroleum Corporation and MYCO Industries, Inc., respectively. Akin Gump Strauss Hauer & Feld LLP acted as legal advisor to EOG.
Conference Call Tuesday, September 6, 2016
EOG will host a conference call to discuss the transaction that will be available via live audio webcast at 10 a.m. Central time (11 a.m. Eastern time) on Tuesday, September 6, 2016. To listen, log on to the Investors Overview page on the EOG website at http://investors.eogresources.com/overview. The webcast will be archived on EOG's website through September 20, 2016.
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Create E-mail Alert Related CategoriesCorporate News, Guidance, Hot Corp. News, Management Comments, Mergers and Acquisitions
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