American Oil and Gas Reporter - December 2024 - 47

SpecialReport: Financial Perspectives
With this transaction, Equinor is increasing its average
working interest in the northern Marcellus from 25.7% to 40.7%,
acquiring 100% of EQT's remaining working interest in the gas
assets, which are primarily operated by Expand Energy. The
deal represent 350 million cubic feet a day of forecasted 2025
net production and is expected to close at the end of the year.
It follows a previous agreement that closed
at the end of May in which the two companies
swapped Equinor's operated position in the
Marcellus and Utica in Ohio for a stake in
EQT's non-operated interest in the northern
Marcellus.
Changing Definition
So reading the tea leaves, are more deals
like those both between oil and gas companies
on the horizon? Most assuredly, responds
Doug Prieto, chief executive officer of Tailwater
E&P, which is an integrated business
of Tailwater Capital.
" The definition of non-operator has changed rather significantly.
As recently as the 2010s horizontal drilling, well spacing, and
drainage were not as well understood as they are today, " Prieto
states, adding that the scientific know-how extends to both operators
and non-operators alike. " On the business side, capital
discipline is much stronger and capital efficiency is much
higher. Dividends are larger, and there is less net debt. "
Given that it can cost $500 million to fully develop a single
drilling and spacing unit, non-operator interest positions are an
invaluable source of capital input and expertise to help get
projects done. " Even for the largest operators, that can be a significant
amount of money. The operators do not want to increase
debt, so the non-op is in a position to provide both capital and
expertise. We can sculpt the drilling project together, " he says.
That ability to understand what is happening in the field
works both ways: the non-op can better decide whether it wants
to participate well to well, and then can offer insights and
support to the operator, he notes.
" We actively discuss benches and landing targets, " Prieto
relates. " That is very different from back in the day when a
non-op would take a 3% interest in a vertical well that would
cost $1 million. We buy balanced production, work in progress,
and inventory. "
Technical expertise extends to geology as well, Prieto points
out. " We have a meaningful focus on research, technology, and
aggregation of data, especially digital optimization. We have a
data warehouse where a lot of information goes into our visualization
tool and mapping system. That includes proprietary
daily production data. "
Operators are perfecting different frac designs and systems,
Prieto adds. " Operators are targeting new benches, frac designs
and increased lateral lengths. We have not underwritten everything-sometimes
it's good to be a follower-but all of that information
is incredibly useful. "
Private equity is also seeing interest in non-ops from new
types of investors. " We have long had the usual mix of pension
funds, endowments and long-dated investors as well as family
offices, " Prieto explains. " We are starting to see value-oriented
investors as well as generalists who are new to energy. Overall
markets are seeing capital go in the other direction, away from
" We have long had the usual mix of pension
funds, endowments and long-dated investors as
well as family offices, and we are starting to see
value-oriented investors as well as generalists who
are new to energy. "
Doug Prieto
Chief Executive Officer
Tailwater E&P
conventional energy, but people who have been in oil and gas a
long time are gobbling this up at today's multiples. "
Largest Public Non-Op
Northern Oil & Gas is by far the largest public non-op, with
a market capitalization of more than $4 billion. Based in Minneapolis,
the company had a busy year with several major
transactions.
In October, Northern closed its largest deal ever, the acquisition
of Uinta Basin assets from XCL Resources, including assets
previously owned by Altamont Energy. It jointly acquired the
assets with Denver-based SM Energy, which will become the
operator of substantially all the assets under cooperation and
long-term joint development agreements with Northern. The
combined unadjusted purchase price was $2.55 billion in cash,
of which Northern paid $511.2 million.
In announcing the deal, Northern said the assets offer " more
than a decade of Tier 1 inventory across 15,800 net acres in the
Uinta Basin, with 116 net underwritten undeveloped locations
and additional exploration upside potential. "
The comes off another transaction Northern closed in September:
a $205 million acquisition of Delaware Basin assets from Point
Energy Partners, a Vortus Investments company. In this case,
Northern jointly acquired the assets with Tulsa-headquartered
Vital Energy, which will become the operator of substantially all
the assets under joint development and operating agreements.
In addition to acquiring assets, Northern has been repurchasing
shares, to the tune of nearly 1.5 million shares during the first
half of the year, with $150 million allocated at mid-year for
further buybacks.
Non-Op Discounts
AOGR sat down with Conrad Gibbins, co-head of upstream
for Jefferies, to get a market update on the current environment
DECEMBER 2024 47
American Oil and Gas Reporter - December 2024

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