Big Deals in Oil and Gas Spark New Energy
Flurry of energy activity over the past month, including a major multi-billion dollar deal.
According to several news outlets, ONEOK Inc. agreed to buy Magellan Midstream Partners LP in a $18.8 billion cash-and-stock transaction that would create one of the largest US oil and natural gas pipeline operators.
The deal will see each Magellan stakeholder receive $25 in cash and 0.667 shares of ONEOK stock per unit, representing a 22% premium to closing prices on May 12, the companies said in a joint statement on Sunday. The transaction includes $8.8 billion in new equity and the assumption of $5 billion of existing net debt.
Pipeline operators are increasingly turning to acquisitions for growth as the transition to renewable energy pares the need for new links and threatens to make some existing assets redundant. The acquisition will give ONEOK, which currently transports only natural gas and its byproducts, access to a network of crude oil and refined-products conduits and terminals sprawling from Texas to Minnesota.
The combined company will have a total enterprise value of $60 billion, according to the statement. That would put it among the five largest US pipeline operators by that criteria, according to data compiled by Bloomberg.
According to Reuter’s ONEOK shares fell 5.6% as of 8:33 a.m. in pre-market trading in New York. Magellan units surged more than 15%.
For Magellan, the deal represents an opportunity to exit the so-called master limited partnership structure at a higher premium than some peers in recent transactions, according to Timm Schneider, an analyst who runs The Schneider Capital Group.
MLPs have generally fallen out of the favor among investors since the crude-market crash of 2014-2016 and a change in US tax policy.
The transaction is expected to close during the third quarter, subject to shareholder and regulatory approvals. ONEOK has secured $5.25 billion in fully committed bridge financing for the cash portion of the deal.
ONEOK expects the transaction to have a positive impact on both per-share earnings and free cash flow. Both companies are based in Tulsa, Oklahoma.
Northern and Forge Energy II
Northern Oil and Gas, Inc. (NYSE: NOG) agreed to acquire a 30% undivided stake in certain oil and gas assets of Forge Energy II Delaware, LLC located in the Delaware Basin, in partnership with Vital Energy, Inc., for a purchase price net to NOG of $162 million in cash, subject to typical closing adjustments.
The Acquired Assets are primarily located in Ward and Reeves Counties, Texas and include approximately 10,200 net acres, 30.5 net producing wells, 2.3 net wells-in-process and ~20 low-breakeven net undeveloped locations. Upon closing, the operator of the assets will be Vital, with NOG participating in development pursuant to cooperation and joint operating agreements entered into with Vital in connection with the acquisition.
Recent production on the Acquired Assets was approximately 3,400 Boe per day (2-stream, 79% oil). For the second half of 2023, NOG expects average production of >3,750 Boe per day (2-stream, 79% oil) and approximately $17 million of capital expenditures.
The effective date for the transaction is March 1, 2023, and NOG expects to close the transaction at the end of June 2023. The obligations of the parties to complete the transactions contemplated by the purchase agreement are subject to the satisfaction or waiver of customary closing conditions.
“This transaction crystallizes NOG’s position as a reliable and consistent partner for the purchase and development of high-quality properties,” commented Nick O’Grady, NOG’s Chief Executive Officer. “We are excited to work alongside our partners at Vital to develop the Forge Assets with strong alignment and cooperation.”
“As we enter into this joint acquisition, we are taking NOG’s capabilities and opportunity set to the next level, adding yet another arrow to our M&A quiver,” commented Adam Dirlam, NOG’s President. “The Forge Assets are high-quality with the opportunity for clear and concise development to deliver the consistent performance our investors have come to expect.”
Kirkland & Ellis counseled Northern Oil and Gas, Inc. on the professional endeavor.
The Kirkland team was led by real asset M&A partners David Castro Jr., Chad Smith and Will Eiland and associates Jonathan Strom, Mitch Holliman, Curtis French and Mohammad Alkadhem.
Trio Petro in Cali
Trio Petroleum Corp. announced that its HV-1 well has confirmed a major accumulation of oil and gas in the Presidents field in its South Salinas project located in Monterey County, California.
The HV-1 well is a two-mile step-out from Trio’s HV-3A discovery well that found high-quality, mid-gravity oil at depths between 3,750 to 5,100 ft. The HV-1 well drilled through approximately 1,800 ft of the Monterey Formation with major indications of oil and gas prior to reaching total depth at 6,631 ft.
The company is currently running well casing from surface to total depth to properly complete the well and is commencing its evaluation of the well data collected.
The HV-1 well was drilled on a new oil and natural gas field that the company refers to as the Presidents field. The Presidents field is a large oil and gas development project located in the company’s South Salinas project in Monterey County, California.
The HV-1 well location was chosen based on interpretation of three-dimensional seismic data with the goal of confirming and defining the magnitude of this new oil and gas field, in which Trio owns an 85.75% working interest.
Frank Ingriselli, Trio’s Chief Executive Officer, commented “We plan to put the HV-1 well on production after we finalize completion operations and our evaluation of the new data we are acquiring from the well, after which we will have a better understanding of production rates, which we plan to announce when available.”
Zefiro Methane Corp
Zefiro Methane Corp. (ZMC), which seeks to reduce methane emissions by plugging orphaned and abandoned oil and gas wells, while originating methane emission offsets, announced it has acquired a majority ownership stake in Plants & Goodwin, (“P&G”), a Pennsylvania-based provider of services to plug orphaned oil and gas wells over the past 50-plus years.
This acquisition will position Zefiro to address the burden to communities posed by millions of non-productive wells left idle by oil and gas producers over recent decades. Curt Hopkins, CEO of Zefiro, points out that this allows the company “to provide an immediate solution, at scale, to this long-standing and often environmentally dangerous legacy problem.” Zefiro plans a roll-out to various states across the country.
Zefiro seeks to address the nationwide problem caused by the impact of un-remediated oil & gas wells, chief among them the emissions of methane into the air. According to the latest estimates, there are more than 4 million orphaned oil and gas wells spread out across 26 different states.
Experts believe that many of these wells are currently emitting methane that is approximately 25-84 times more potent than carbon dioxide as a greenhouse gas. With the ability to seriously harm air quality, these unplugged wells are quickly becoming one of the nation’s most pressing challenges to continued sustainable economic growth.
This is evidenced by the fact that last year, as part of the 2022 Infrastructure Investment and Jobs Act, the U.S. federal government set aside $4.7 billion to help states permanently plug orphaned wells. So far, 26 states have applied for funding.
Plants & Goodwin will play a key role in addressing this challenge. Founded in 1970, family-owned Plants & Goodwin is a long-standing leader in plugging orphaned wells in shale and sandstone formations across the Appalachian Basin.
With the Zefiro transaction, Luke Plants will assume the CEO duties for P&G, taking over for his father, Steve, who will remain with P&G as President of Abandonment Operations.
The company has approximately 100 employees, all highly skilled and experienced in this crucial specialization.
Steve Plants said, “Our family has been plugging wells for more than 50 years and our partnership with Zefiro is a game-changer for finally bringing about a large-scale, nationwide solution to methane emissions from abandoned wells.” Luke Plants said, “Public concern and awareness about the health and environmental implications of orphaned oil and gas wells is at an all-time high. And with the federal government behind a solution and the support of Zefiro, we will be among the first to tackle the problem and take our experience and lessons learned to other basins across the U.S.”
Zefiro Methane Corp. seeks to reduce methane emissions by plugging orphaned and abandoned oil and gas wells while originating methane emission offsets.
Under executive leadership that includes members of the former carbon market team at J.P. Morgan, Zefiro actively deploys crews to decommission wells throughout the United States.
In addition, with unprecedented global demand for carbon offsets as corporations and institutions work towards net-zero targets, Zefiro’s methane emission reductions strategically align with industry leaders for a greener future.
Zefiro’s Founder & Chairman, Talal Debs, PhD., said, “Zefiro’s strategy is to integrate real (physical process) innovation with new forms of capital, through the ‘environmental’ credit markets; the result will be a new kind of enterprise. By enlisting veteran operators like Plants & Goodwin, we are taking the first big step to making our unique vision a reality.”
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