SM Energy, Northern Oil and Gas Partner to Acquire XCL Resources Shale in Utah for $2.6 Billion

(Bloomberg) — SM Energy Co. and Northern Oil and Gas Inc., two U.S. shale drilling companies, have agreed to acquire assets in Utah’s Uinta basin for about $2.6 billion in cash, the latest in a string of oil and gas acquisitions that operators expect to expand scale drawing.

SM said Thursday it will pay $2.04 billion net for an 80% stake in the assets, which are currently held by XCL Resources LLC. Northern Oil will pay $510 million for a 20% stake.

The shale takeover comes as cash-flush U.S. oil and gas companies continue to consolidate while trying to refresh their drilling resources.

The latest deal also marks another major exit for private equity investors from an energy company. XCL is backed by EnCap Investments LP and Rice Investment Group.

Portfolio company EnCap also agreed earlier this month to sell Permian Basin assets to Matador Resources Co. for USD 1.9 billion. Warburg Pincus, a buyout firm, is seeking a buyer for oil and gas explorer Citizen Energy in a deal that could bring in nearly $2.5 billion, people familiar with the matter said this week.

Quantum Capital Group, another private equity investor, has agreed to buy Caerus Oil and Gas from a group of investment firms, people familiar with the transaction said this week — a relatively rare example of a so-called secondary buyout in the U.S. oil and gas industry.

SM has operations in the Eagle Ford and Midland basins in Texas, and the XCL deal gives it a foothold in the Uinta region, a growing region producing waxy crude oils used to make lubricants.

SM will be the operator of XCL’s assets following the completion of the transaction, which was first reported by Bloomberg News on Wednesday. The assets comprise approximately 37,200 net acres.

SM shares fell 4.5% in premarket trading at 8:38 a.m. in New York. Northern Oil fell 1.2%.

Kirkland & Ellis LLP is SM’s legal advisor on the transaction, Jefferies LLC is XCL’s financial advisor and Vinson & Elkins LLP is its legal advisor. RBC Capital Markets is Northern Oil’s financial advisor.