What M&A Drought? NOG ‘Assessing’ 10 Deals Valued at $8B

Northern Oil and Gas (NOG), with non-operated interests in the Williston, Permian, Uinta and Appalachian basins, is seeing a swell of non-operated assets coming to market, CEO Nick O’Grady said on a recent earnings call.

“We've seen and … even have had several that are coming to market, some of the largest just standard non-op assets we've seen, in maybe ever,” he said.

Where others see an unsettlingly quiet M&A market, NOG’s interests and joint ventures among about 95 E&P operators—from Exxon Mobil and EQT Corp. to Devon Energy and Vital Energy—are giving them a different perspective.

NOG is witnessing a remarkable surge in what executives called “deal backlog.”

“Currently, more than 10 ongoing processes are being assessed with a combined value exceeding $8 billion and additional opportunities are anticipated,” said President Adam Dirlam. “As the largest non-operator of scale, we are having more strategic bilateral conversations, and we're optimistic that our flexible model and strong balance sheet position us well to capitalize in this environment.”

In the second quarter, NOG itself evaluated 170 potential transactions—40% more than the first quarter. In April, the company closed a deal for 2,275 net acres in the Midland Basin for $61.7 million.

The company’s ground game snapped up more. NOG closed 22 transactions in the second quarter, adding 4.8 net wells and more than 2,600 net acres across all of its basins for $31.2 million, including associated development costs.

And NOG offered a possible answer to a recurring, unanswered question in the M&A market. Following a few years of massive oil and gas consolidation, when will yesterday’s buyers start to shed non-core assets from their portfolios?

Divestitures have been stubbornly muted and portfolio rationalization unrealized despite enough time for some acquirers to digest new assets.

Big buyers have made some divestitures, such as Occidental Petroleum most recently saying it would sell $950 million worth of assets through multiple agreements. On Aug. 7, ConocoPhillips—buyer of Marathon Oil for $17.1 billion last year—agreed to sell its newly added Anadarko Basin assets to Flywheel Energy for $1.3 billion.

But a hoped-for divestiture bonanza has yet to materialize. Some of this has been due to volatility, particularly in the oil markets.

Dirlam said some packages have come out and been fully marketed. But a lot of operators may be set on a different tack.

Some are exploring the non-op market “where 20% of these portfolios are all made up of non-operated properties,” he said. “They're also doing it in a way where they're selling down a minority interest on a unit-by-unit basis but still retaining operatorship.

Story Continues

“And so, I think operators are getting creative and not necessarily just throwing a massive asset package into the market,” he said. “We're seeing all of the above in terms of kind of the different structures as to how a lot of these operators are socializing their assets post-merger.”

NOG, with a market capitalization of about $2.4 billion, has found itself uniquely situated by being involved in most major M&A processes in the marketplace, O’Grady said.

NOG has partnered with a variety of larger E&Ps as a co-party to deals, including SM Energy’s purchase of Uinta producer XCL Resources for a total of $2.55 billion. The company has also participated in deals with Vital Energy twice and Earthstone Energy (now Permian Resources).

“This is being driven by the breadth of our capabilities, our reputation in the marketplace and the increasing need for our capital,” O’Grady said.

“I'm pleased to note that our backlog of potential acquisitions from bolt-ons to truly transformational transactions is at an all-time peak both in value and in many cases, impacting quality,” he added. “These potential transactions cover almost every structure, basin of operation and variance of scale. Should we be successful on our terms, these opportunities could be highly beneficial to our stakeholders on almost every measure.”

Jefferies analyst Lloyd Byrne said NOG’s focus remains on its ground game and the deals show the company’s proactive approach to generating value in a down cycle.

However, management highlighted “that prices would need to fall further for continued high capital allocation to the” ground game.(Source: Northern Oil and Gas)

E&Ps pull back

With a view into so many public and private operators, O’Grady acknowledged “we're seeing many of our operators pull back on activity and defer that activity until the environment is more clear, and they want to make money on that inventory.”

The oil is still in the ground, he said, but E&Ps would rather preserve that until “there's a better day.”

“And so while everybody wants to see linear growth, the real key is to drill those wells when it's most profitable,” he said.

Byrne said in an analyst report that while NOG’s second-quarter EBITDA of $440 million topped consensus of about $367 million, that performance will likely be overshadowed by cuts to 2024 capex, TILs and production.

“NOG cut '25 capex by $125-150 [million] to $925-1,050 [million] due to commodity price volatility, reduced activity and lower discretionary spending. The lower activity translates to lower net TILs at ~83-85 (from 97-99) and spuds to 75-85 (from 106-110),” Byrne said.

The company reported it had evaluated about 250 wells for authorizations for expenditures and saw increased activated levels in the Permian, Uinta and Appalachian basins. Among wells in process, Permian Resources, Mewbourne Oil and Continental Resources were driving activity in the second quarter.

O’Grady said operators are doing what they should be doing—making decisions governed not just by oil prices now but by the future strip and by a risk factor on that future strip.

“And if you look at the fundamentals of oil today, they are in question, right? You have significant volumes coming online. And so the risk profile to that strip, of course, it could be better, but it could be worse.”(Source: Northern Oil and Gas)

View Comments