EOG Inks $2.5B Deal In Shift To Low-Cost Permian Shale

EOG Inks $2.5B Deal In Shift To Low-Cost Permian Shale
EOG Resources says it would buy privately held Yates 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.

Reuters

Sept 6 (Reuters) - EOG Resources Inc said on Tuesday it would buy privately held Yates Petroleum Corp for $2.5 billion in stock and cash, in the latest move by a U.S. energy company to acquire acreage in the Permian Basin, one of the country's most cost-effective oil fields.

EOG's shares rose more than 6 percent to $94.94 at mid-afternoon as analysts said the deal was inexpensive for the company.

The buyout, which had been under negotiations for months, follows a string of Permian land purchases in the past year by companies that include Pioneer Natural Resources Co and WPX Energy Inc.

The Permian is the largest U.S. oil field, with 189 of the country's 481 total active rigs in early August, according to the latest data from energy services firm Baker Hughes Inc .

With the acquisition, EOG would shift its focus away from the Eagle Ford shale, a more expensive Texas field that had helped the company grow into the largest onshore oil producer in the contiguous United States during the past decade. Much of the Permian acreage is near EOG's existing well locations and pipeline infrastructure.

"This deal really isn't about getting bigger. It's about getting better," EOG Chief Executive Bill Thomas told investors on a Tuesday conference call after announcing the acquisition.

"We'll be able to grow oil (production) with less capital and more efficiently than we do now."

The company plans to start drilling on the new acreage as soon as the deal closes in October and boost capital spending in the Permian in 2017, he said.

EOG will issue 26.06 million shares valued at $2.3 billion and pay $37 million in cash in exchange for Yates, which was founded by Martin Yates, Jr. in New Mexico in 1907 and is run by his descendents.

The deal would raise EOG's position in the Permian and adjacent plays by more than 200,000 acres, to 574,000 acres, and double its position in the Delaware Basin in southern New Mexico and West Texas.

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 purchase by EOG, which has an investment-grade credit rating, reinforces the desire by companies that can afford to make acquisitions to "play offense," Tudor, Pickering & Holt analysts wrote in a note to clients.

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.

(Reporting by Ernest Scheyder in Houston and Sudarshan Varadhan in Bengaluru; Editing by Ted Kerr and Richard Chang)

Copyright 2016 Thomson Reuters. Click for Restrictions.

WHAT DO YOU THINK?

Click on the button below to add a comment.
Post a Comment
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
john weaver | Sep. 6, 2016
EOG has confidence in the future, So do we


Related Companies
Events  SUBSCRIBE TO OUR NEWSLETTER

Our Privacy Pledge
SUBSCRIBE



Most Popular Articles

From the Career Center
Jobs that may interest you
Global Privacy Manager
Expertise: Risk Management
Location: Houston, TX
 
Legislative & Regulatory Analyst - Upstream & Midstream
Expertise: Legal|Regulatory Compliance
Location: San Ramon, CA
 
Engineering Interns - Amarillo & Lubbock, TX Job
Expertise: Project Management|Refinery / Plant Operations Supervisor|Student / Recent Grad
Location: Amarillo, TX
 
search for more jobs

Brent Crude Oil : $45.97/BBL 2.91%
Light Crude Oil : $44.67/BBL 2.74%
Natural Gas : $3/MMBtu 0.33%
Updated in last 24 hours