Matador Resources Co. completed its largest deal in the Permian Basin with an agreement to acquire Advance Energy Partners Holdings LLC with assets in New Mexico and West Texas.
The independent company is providing an initial cash payment of $1.6 billion, with another $7.5 million paid monthly in 2023 if the average price of West Texas Intermediate (WTI) oil exceeds $85 per barrel. On Tuesday, when the deal was announced, WTI was trading at $79.86 a barrel.
“We carefully managed our balance sheet and strengthened it over time to be able to take advantage of a special opportunity like this,” said CEO Joseph Foran. “I’d say it’s more of a happy coincidence,” he told analysts during a conference call. “The company came up to us and said, ‘Look, we think you are a logical buyer. We need to sell this to complete other tasks.”
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Matador has traditionally focused on the oil and fluid rich portion of the Wolfcamp and Bone Spring formations in the Delaware sub-basin. The company, according to Foran, “evaluated this deal based on breed quality, strong existing production and cash flow profile, potential inventory increase, high quality inventory, available transportation opportunities, and strategic fit with our existing real estate portfolio.”
Matador also develops oil and gas assets in the Eagle Ford fields in South Texas and the Haynesville Shale and Cotton Valley fields in northwest Louisiana. In addition, he operates Pronto Midstream LLC, a transportation and transportation company.
Northern Delaware Heavy
The deal with Houston-based Advance, a portfolio company of private equity firm EnCap Investments LP, is expected to close before the end of June. Upon completion, Matador will acquire approximately 18,500 clean acres of land in northern Delaware.
The deal will also add about 35 miles of infield gas and catchment lines to Pronto. In addition, Matador will purchase three compressor stations.
Pronto, which operates in Lee County, New Mexico, will gain access with Advance’s assets to approximately 50 million cubic feet per day of natural gas throughput to the Waha Hub in the Permian Basin through the Double E pipeline operated by Summit Midstream Partners LP.
In the first quarter of 2023, Matador expects the Advance area to produce 24,500-25,500 boe/d, 74% oil weighted. Total Advance proven reserves last year were estimated at approximately 106.4 mmboe, 73% oil-weighted.
Foran noted that among the highlights that attracted Matador to the Advance areas were “the cost savings associated with developing these assets through longer sidetracks in multi-well sites with centralized facilities, the mid-flow synergy with Pronto, and the status of the areas held under production.” . “.
Engineering firm Netherland, Sewell & Associates Inc. assisted Matador personnel in stock assessments.
“Very optimistic” for pre-leases
Advance’s assets include 203 clean horizontal drilling sites. The area also has 20 clean drilled but incomplete wells.
“This is an area of the North Delaware Basin that has been very well developed primarily for Bone Spring targets, but also for Wolfcamp A and B…,” said EVP Thomas Elsener of Reservoir Engineering. He discussed assets on Tuesday during a conference call.
“…We think Wolfcamp D has growth potential,” he said. “This is a good target source rock that has been developed throughout the basin and we are really seeing this additional potential… Our average operating side-length is expected to be around 9,400 feet…”
Elsener said: “There may be some opportunities as the plazas are attached to some of our pre-existing sections to lengthen some of these side sections… We are very optimistic about all of these different zones.”
Houston-based Advance uses a single rig to drill 19 clean holes in the northern part of Matador’s Antilope Ridge in Lea County. Matador indicated that the estimated capital costs for drilling, completion and equipment to operate one drilling rig in the Advance lease area will be $300-350 million in 2023. It is planned that from the closing date to the end of the year, about $225-275 million will be spent.