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EOG Resources Boosts Permian Presence With $2.5B Acquisition

Rig

EOG Resources (NYSE:EOG) said on Tuesday that it had agreed to buy independent company Yates Petroleum Corporation in a stock-and-cash transaction worth for US$2.5 billion, thus strengthening its presence in one of the lowest-cost U.S. shale plays, the Permian.

The terms of the deal stipulate that EOG issue 26.06 million common shares valued at US$2.3 billion and pay US$37 million in cash. Closing is expected to take place in early October 2016.

The acquisition raises EOG’s position in the Permian Basin and adjacent plays to 574,000 net acres. The deal will also create a combined 424,000 net-acre position in the Delaware Basin, initiate EOG’s foothold in emerging Northwest shelf plays of 150,000 net acres, and double the Powder River Basin position to 400,000 net acres.

Yates’ 1.6 million net acres across the western U.S. have proved developed reserves of 44 million net barrels of oil equivalent.

“This deal really isn't about getting bigger. It's about getting better,” EOG CEO Bill Thomas told investors on a conference call.

The Permian and the Marcellus are currently the two largest basins by production, with the Permian edging out the Marcellus by a hair. One of the reasons both basins are continuing to produce at high levels is the favorable well economics in the basins. According to KLR Group, breakeven prices are lower in the Permian and Marcellus than in other plays.

EOG Resources -- best-known for its other Texas shale operations in the Eagle Ford -- has recently boosted its fracking plan by 30 percent.

In the second quarter of 2016, EOG Resources increased its Eagle Ford premium inventory by 390 net drilling locations to nearly 2,000, and said it could further raise the number if it achieves cost reductions or well productivity improvement.

Now, with the Yates acquisition, EOG is shifting its focus to the more-cost-efficient Permian basin.

By Tsvetana Paraskova for Oilprice.com

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