Benzinga | Nov 16, 2021 04:44PM EST

Northern Oil And Gas Announces Permian Basin Expansion With $406.5M Purchase

* Agreement to acquire non-operated properties located in the Permian Basin from entities affiliated with Veritas Energy, LLC

* Purchase price of $406.5 million in cash and ~1.9 million common equity warrants with an exercise price of $28.30 per share

* Current production of ~11,500 Boe per day (3-stream basis) or ~9,100 Boe per day (60% oil, 2-stream) with an estimated PV-10 on the PDP, WIPs/AFEs of approximately $429 million

* Significant upside associated with approximately 6,000 net acres in the core of the Delaware Basin including over 40 risked net undeveloped Delaware locations

* Forward 1-year unhedged cash flow from operations expected to be approximately $185 million at current strip pricing, representing an attractive cash purchase price transaction multiple of approximately 2.2x

* Significantly accretive to key valuation metrics, including TEV / EBITDA, earnings per share and free cash flow

* Leverage ratio enhancing on a forward basis based on contemplated financings

* Upon closing of the acquisition, management intends to submit another request to the Board of Directors to raise the quarterly dividend 50% to $0.12 per share (from $0.08 per share), marking the third increase to NOG's dividend since its initiation in the second quarter of 2021

* Pro forma Northern forecasts becoming a 70,000+ Boe per day company from a diversified asset base, with greater than 40% of Northern's 2022 production expected to come from the Permian and Marcellus

Northern Oil and Gas, Inc. (NYSE:NOG) ("Northern") today announced that it has agreed to acquire substantially all of the non-operated Permian Basin assets (the "Assets") owned by certain entities affiliated with Veritas Energy, LLC ("Veritas" or the "Seller").

PERMIAN BASIN ACQUISITION

Northern has entered into a definitive agreement to acquire non-operated oil and gas properties located in the Delaware and Midland Basins for a cash purchase price of $406.5 million, subject to typical closing adjustments. The assets are primarily located in Lea and Eddy counties, NM, and Loving, Reeves, Ward and Winkler counties, TX.

As part of the transaction, Northern will issue the Seller ~1.9 million seven-year equity warrants with a strike price of $28.30 at closing. Northern expects to commence a public equity offering to fund a portion of the acquisition.

Current production on the assets is approximately ~9,100/11,500 Boe per day (2-stream/3-stream, ~60% oil), and Northern expects average production of more than 10,500 Boe per day in 2022 (2-stream, ~60% oil). During the pre-closing period, Northern expects the assets to generate approximately $43 to $45 million of cash flow from operations in the fourth quarter of 2021 with $50 million of capital expenditures and expected closing adjustments. Northern expects the assets to be immediately self-funding at closing. Forward 1-year unhedged cash flow from operations from the effective date is expected to be approximately $185 million and 2022 unhedged cash flow from operations is expected to exceed $180 million, based on current strip pricing. Northern expects $35 to $40 million in capital expenditures on the assets in 2022. The acquired assets include 31.7 net producing wells, 5.6 net wells in process, 4.0 AFE'd or permitted net wells and 40.8 risked net future development locations. The assets are managed by multiple, best-in-class operators in the Permian Basin, including Mewbourne, Devon, ConocoPhillips, and EOG as the largest operators accounting for an estimated 64% of the expected 2022 production across the Assets.

The effective date for the transaction is October 1, 2021 and Northern expects to close the transaction in the first quarter of 2022.