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EOG Resources Acquires Yates, but at What Cost?

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EOG Resources’ Yates acquisition

On September 6, 2016, crude oil and natural gas producer EOG Resources (EOG) announced a definitive agreement to combine with Yates Petroleum, Abo Petroleum, MYCO Industries, and certain other entities (collectively, Yates).

Yates is a privately held, independent crude oil and natural gas company with ~1.6 million net acres across the Western United States and current production of ~29.6 Mboe (thousand barrels of oil equivalent) per day.

Key highlights of this transaction are as follows:

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  • The transaction is valued at ~$2.5 billion.
  • EOG will issue 26.1 million shares of common stock valued at $2.3 billion and pay $37 million in cash, subject to certain closing adjustments.
  • EOG will assume and repay $245 million of Yates’s debt, which will be offset by $131 million of anticipated cash from Yates, subject to certain closing adjustments.
  • EOG will absorb Yates’s 300 employees into its workforce after the acquisition.
  • The Yates acquisition is expected to close in 4Q16, pending customary closing conditions.

EOG Resources’ advantage

As shown in the above chart, Yates’s acreage is an excellent complement to EOG Resources’ existing position in the core of best plays like Delaware Basin and Powder River Basin.

As per EOG Resources’ conference call, it will add ~1.6 billion Boe (barrels of oil equivalent) of premium net resource potential (or estimated reserve potential). When divided by the transaction value of $2.5 billion, Yates’s premium resource is acquired at only ~$1.6 per boe (barrel of oil equivalent), not adjusting for 29.6 Mboe per day of current production.

While commenting on the acquisition, EOG Resources’ chair and CEO, William Thomas, said, “This transaction combines the companies’ existing large, premier, stacked-pay acreage positions in the heart of the Delaware and Powder River basins, paving the way for years of high-return drilling and production growth.”

Many upstream companies are venturing out to add quality acreage to their portfolio at attractive prices. In May, Range Resources (RRC) announced a merger with Memorial Resource Development (MRD) in an all-stock transaction valued at $4.4 billion. In June 2016, Antero Resources (AR) also acquired Marcellus Shale acreage from Southwestern Energy (SWN) for ~$450 million.

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