Riley Exploration Permian, Inc., announced Feb. 28 that it has entered into a definitive purchase agreement to acquire oil and gas assets from Pecos Oil & Gas, LLC, an affiliate of Cibolo Energy Partners LLC, for cash consideration of $330 million. The acquisition will be funded through a combination of borrowings under the Company’s revolving credit facility and the proceeds from the issuance of new senior unsecured notes. Concurrent with the signing of the purchase agreement, the Company entered into a commitment letter with EOC Partners Advisors L.P. for the issuance of $200 million of senior unsecured notes upon closing of the acquisition and subject to the terms and conditions set forth therein. The transaction is subject to customary terms and conditions, including purchase price closing adjustments. The transaction has an effective date of January 1, 2023 and is expected to close early in the second quarter of 2023.
Bobby Riley, Riley Permian CEO and Chairman, commented, “We’re excited to add this prolific asset and new region to our portfolio. Our team has been highly selective in reviewing acquisition opportunities, and this is a deal that fits our criteria, as it brings over 100 high quality drilling locations and provides immediate accretion to relevant financial metrics. This is an under-developed asset with extensive development potential, allowing for value creation potential through the drillbit. Our enhanced scale will improve our cost structure, will facilitate normalizing development cadence and may lead to oilfield service cost savings. Overall, we believe this transaction positions our Company to continue delivering strong financial performance and shareholder returns.”
- 11,700 total contiguous net acres in Eddy County, NM (99% held by production)
- Current production of 7.2 MBoe/d and 4.2 MBo/d (58 percent oil, 81percent liquids)
- Estimated PDP PV10(1)(2) of $260 million, as of January 1, 2023, with 16.5 MMBoe PDP reserves(2)
- Over 100 gross horizontal development drilling locations
- Primary geologic targets within the Yeso trend include the Blinebry, Glorieta and Paddock formations
- 100 percent ownership of water gathering and disposal infrastructure including nearly 70 miles of water gathering pipelines, multiple saltwater disposal wells and frac ponds
- Attractive Financial Accretion:The transaction is valued at 3.4x 2023 Adjusted EBITDAX(1) and a 15% free cash flow yield(1), accretive relative to Riley Permian’s 2023 stand-alone metrics. On a combined basis, the transaction is forecasted to increase Riley Permian’s Adjusted EBITDAX(1)(3) by ~50% and Free Cash Flow(1)(3) by ~70% in 2023 (vs. Riley Permian standalone), with no increase in share count.
- Significant Increase in Inventory Depth and Quality:Significant growth in Riley Permian’s inventory of oil-weighted, horizontal development drilling locations. Drilling economics compete with Riley Permian’s existing core asset, with overall lower drilling and completion costs for shallower, conventional source rock as compared to deeper shale wells.
- Logical Extension Area:Yeso trend asset has many similarities to Riley Permian’s existing core asset focused on the San Andres: a shallow, conventional reservoir on the same Northwest Shelf geology trend that can be developed using modern, unconventional techniques (horizontal drilling and fracturing), and which has a lower production decline rate than shale. Riley Permian’s extensive expertise with similar geology reduces execution risk. Adding an extension area diversifies our operating footprint, reducing single-area concentration and alleviating some operations constraint, such as midstream gas take-away capacity.
- Enhanced Scale and Cost Synergies:Significantly increased size with only modest increased G&A leads to improved cost structure (25% lower pro forma G&A on a per Boe basis). Overall increased drilling and completion activity may lead to normalized activity cadence and oilfield service cost savings.
- Modest Pro Forma Leverage Profile: Estimated pro forma leverage at close of ~1.3x, based on forecasted, pro forma combined 2023 Adjusted EBITDAX(1)(3), with estimated pro forma liquidity of ~$125-150 million based on an anticipated increased borrowing base. The Company forecasts both leverage and liquidity improving through 2023 based on forecasted debt reduction. Further, attractive updated derivatives positions allow for improved downside protection while maintaining upside price exposure.