It’s acquisition time in the sector once again
SM Energy is reportedly in discussions to acquire XCL Resources for a proposed sum of $3 billion, a move that could significantly enhance SM Energy’s footprint in the oil sector. XCL Resources is a prominent entity within the Uinta Basin of Utah, known for its light, sweet shale crude production, although it often remains overshadowed by the more widely recognized Permian Basin.
Earlier reports surfaced in March indicating that EnCap Investments, the owner of XCL Resources, was seeking a buyer. This followed a failed attempt to merge XCL Resources with another local company in the Uinta Basin—a plan thwarted by antitrust regulators. XCL Resources boasts a considerable operation, producing an average of 55,000 barrels per day across an expanse of 45,000 acres. Additionally, the company is developing a sand mine that will provide frac sand for its shale operations, further integrating and streamlining its production processes.
SM Energy Nears $3 Billion Deal for XCL Resources https://t.co/fFlf2jnfci
— MortgageBrokersNetwork (@MBNMortgages) June 27, 2024
If this acquisition proceeds, it would mark a significant transaction for EnCap Investments, representing its second substantial divestiture following a previous deal where it sold various portfolio assets to Matador Resources for $41.9 billion. For SM Energy, a company predominantly active in Texas’s Eagle Ford and Midland Basin, this acquisition represents an expansion of its geographic and operational scope. The interest in the Eagle Ford region has been rekindling, highlighted by the recent uptick in investor attention, even though the bulk of merger and acquisition (M&A) activity in the shale sector continues to focus on the Permian.
SM Energy and Northern Oil and Gas, two US shale drillers, agreed to acquire assets in Utah’s Uinta Basin for about $2.6 billion in cash https://t.co/qABk4gqplP
— Bloomberg Asia (@BloombergAsia) June 27, 2024
This potential acquisition is part of a broader trend in the energy sector, which has seen robust M&A activity. For example, last month Crescent Energy finalized a $2.1 billion all-stock transaction to acquire SilverBow Resources. Crescent Energy highlighted that the merger would yield significant synergies estimated between $65 million and $100 million annually, derived from cost of capital savings and enhanced operational efficiencies.
Moreover, according to a forecast by Rystad Energy earlier this year, the global M&A landscape in the upstream sector is expected to witness about $150 billion in transactions from April to December. This projection follows what has been described as the most vigorous first quarter for oil M&A in five years, indicating a healthy and dynamic market environment.
SM Energy, Northern Oil to buy Uinta Basin assets for combined $2.55B – Seeking Alpha https://t.co/I98r8y6QC3
— Witches (@Witchestoday) June 27, 2024
Key Points:
i. Acquisition Discussions: SM Energy is reportedly negotiating to purchase XCL Resources for approximately $3 billion, aiming to expand its operations beyond its current focus areas in Texas.
ii. Target Company Profile: XCL Resources is a key player in Utah’s Uinta Basin, known for its production of light, sweet shale crude, with a daily output of around 55,000 barrels from 45,000 acres.
iii. Background of the Deal: The potential acquisition comes after EnCap Investments, the owner of XCL Resources, looked for a buyer following a failed merger attempt blocked by antitrust regulators.
iv. Strategic Expansion: This deal would mark SM Energy’s strategic expansion into new geographic areas, diversifying its portfolio, which primarily includes the Eagle Ford and Midland Basin in Texas.
v. Broader Industry Context: The deal is part of an active period in the energy sector, with global M&A activity in the upstream sector predicted to reach about $150 billion this year, highlighting a robust market for oil and gas mergers and acquisitions.
Desmond Wengham – Reprinted with permission of Whatfinger News