SM Energy Company has announced an agreement to acquire the Uinta Basin oil and gas assets from entities affiliated with XCL Resources, LLC for an unadjusted purchase price of $2.55 billion. Northern Oil and Gas, Inc. will concurrently acquire a 20 percent interest in the assets for $510 million, leaving SM Energy with an 80 percent interest valued at $2.04 billion. SM Energy will operate the acquired assets and plans to finance the acquisition through a combination of debt and cash on hand.
Key Additions to SM Energy’s Portfolio:
- Approximately 37,200 net acres, increasing the Company’s core net acreage by 14 percent
- Production increase to 195 MBoed by 2025, with crude oil making up over 50 percent
- 390 net locations with breakevens of $43 – $57/Bbl, extending inventory life to over 12 years.
- Cash production margin increase to $50.45/Boe by 2025
- Preliminary proved reserves increased by 107 million Boe, an 18 percent rise
Transaction Benefits: The acquisition aligns with SM Energy’s strategic objectives and is expected to be immediately accretive to key financial metrics. Acquired for 2.9x NTM Adjusted EBITDAX, the transaction is anticipated to increase 2025E Adjusted EBITDAX by 35 percent, Adjusted free cash flow by 45 percent, and cash production margin by 11 percent.
The acquisition expands SM Energy’s asset portfolio, significantly increasing oil volumes and extending low-breakeven inventory life. Pro forma 2025E net production is expected to rise to 195 MBoed, with oil production increasing to 52 percent of the commodity mix. The reinvestment ratio is expected to decrease by 5 percent, and inventory will grow by approximately 390 net quality locations, adding two years of inventory life.
SM Energy’s technical expertise is expected to unlock significant resource upside in the Core Uinta Basin, which has stacked pay potential and high oil content. This results in top-tier well performance and inventory with upside. The Company’s track record in full stack co-development offers potential to drive differential value across as many as 17 benches.
The acquisition supports an increase in the return of capital while maintaining a strong balance sheet. Adjusted free cash flow metrics support an 11 percent increase in the Company’s fixed quarterly dividend policy from $0.18 to $0.20 per share, starting in Q4 2024. The Board of Directors has also authorised a new $500 million share repurchase program through 2027.
The high-margin barrels from the Uinta Basin, due to higher oil content, lower operating costs, and sufficient contracted transportation capacity, are competitive with those from the Midland Basin. SM Energy’s 2025E cash production margin is projected to increase by 11 percent, as the Uinta Basin cash production margin slightly exceeds that of the Midland Basin.
SM Energy remains committed to environmental stewardship, sustainability, and strong corporate governance, and intends to apply its standards to these new operations.
Financing: SM Energy plans to finance the acquisition through a combination of debt and cash on hand. To assist in financing this all-cash transaction, SM Energy has received firm commitments from J.P. Morgan, Bank of America, and Wells Fargo for an aggregate $1.2 billion 364-day unsecured bridge facility.
Timing and Approvals: The Company’s board of directors has approved the XCL Acquisition. Consideration at closing will be subject to customary purchase price adjustments. The effective date of the XCL Acquisition is May 1, 2024, and closing is anticipated to occur in September 2024, subject to customary closing conditions.
President and chief executive officer Herb Vogel commented: “Our differentiated technical team has again demonstrated what sets us apart, having identified a unique opportunity to add top-tier assets with significant upside for a reasonable multiple. We believe that this transaction checks the boxes for our acquisition criteria, and we expect to demonstrate value creation through performance optimisation, inventory expansion, and growth in adjusted free cash flow.”
For more information visit www.sm-energy.com
