EOG Resources Inc said on Tuesday it would buy privately held Yates Petroleum Corp and some of its subsidiaries and other entities in a deal valued at $2.5 billion to boost its assets in the Permian and Powder River basins.
Oil and gas companies, encouraged by an uptick in oil prices, have been buying up acreage in the Permian Basin in west Texas and eastern New Mexico – the nation’s largest shale oil play – as the region is considered among the most cost-effective and most viable to drill.
EOG will issue 26.06 million shares valued at $2.3 billion and pay $37 million in cash in exchange for Yates Petroleum, Abo Petroleum Corp, MYCO Industries Inc and certain other entities, the companies said.
Yates, which holds 1.6 million net acres across the western United States, mainly operates in the Permian Basin and the Powder River Basin in Northeast Wyoming and produces 29,600 barrels of crude oil equivalent per day.
The deal will raise EOG’s position in the Permian and adjacent plays to 574,000 acres, and double its position in the Delaware Basin in southern New Mexico and West Texas, the companies said.
“We don’t believe EOG is paying much for Yates production or acreage outside the Delaware basin,” Cowen and Co analyst Charles Robertson wrote in a note. “We see EOG paying less than $1 million per new premium location.”
EOG said it would assume $245 million of Yates’ debt and $131 million of anticipated cash from Yates.
Wells Fargo Securities LLC acted as financial adviser to Yates Petroleum, Abo Petroleum and MYCO Industries.
EOG’s shares were down marginally at $89.55 in premarket trading.