EOG Resources Inc. (NYSE: EOG) and Yates Petroleum Corp. have negotiated a deal that would see EOG combine with Yates Petroleum, Abo Petroleum Corp., MYCO Industries Inc. and certain other entities (collectively, Yates). Under the terms of the 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 CEO of EOG.
Yates is a privately held, independent crude oil and natural gas company with 1.6 million net acres across the western United States. The company came in at No. 7 in OGFJ’s July installment of the OGFJ100P ranking of privately held companies. EOG is the largest oil producer in the Lower 48, with average net daily production of 551 thousand barrels of crude oil equivalent.
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% increase. A premium drilling location is defined by EOG as a direct after-tax rate of return of at least 30% 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.
Doubles position in Delaware Basin and adjacent plays
Yates 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% 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. Along with EOG's existing acreage, the newly combined company will have 574,000 net acres in the Delaware Basin and Northwest Shelf.
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 holds exploration potential for multiple stacked-pay formations.
Wells Fargo Securities LLC acted as exclusive financial and technical advisor to Yates Petroleum, Abo Petroleum, and MYCO Industries for this transaction. Thompson & Knight LLP, Modrall Sperling Law Firm and Kemp Smith LLP acted as legal advisors to Yates Petroleum, Abo Petroleum, and MYCO Industries, Inc., respectively. Akin Gump Strauss Hauer & Feld LLP acted as legal advisor to EOG.
Closing is anticipated in early October 2016, subject to customary closing conditions. Following the transaction closing, EOG intends to maintain Yates' office in Artesia, NM, including Yates’ 300 employees.