By Molly McEwen
MRT.com , December 21,2022
Minnesota’s Northern Oil and Gas has a strategy of going where the drilling rigs are. And the majority of drilling rigs are in the Permian Basin.
“It’s certainly the most active in the US,” said Nick O’Grady, the company’s chief executive officer, listing the Permian’s activity levels, high quality rock and great operators to serve as partners with the company.
In a spate of deals in both the Midland and Delaware basins over a span of weeks, Northern has made more than $500 million in acquisitions of non-operated assets, said Adam Dirlam, the company’s president.
The Permian has been an area of interest for Northern for some time, said O’Grady, who told the Reporter-Telegram the company began its entry into the Permian Basin with a small acquisition in 2020.
Among Northern’s acquisitions are the $406.5 million purchase of non-operated assets from Veritas Energy. More recent acquisitions, beginning in August, include a $130 million acquisition of non-operated assets in Eddy and Lea counties, New Mexico, and the Texas counties Loving and Winkler. Northern has also agreed to a $157.5 million deal to acquire non-operated working interests in Eddy and Lea counties and Loving County from Alpha Energy Partners and non-operated properties in Howard County from Laredo Petroleum for $110 million.
Most recently the company announced plans to acquire a 36.7% working interest in the Mascot Project in Midland County from Midland-Petro D.C. Partners LLC for $330 million in cash. The project is operated by Permian Deep Rock Oil Company, an affiliate of Midland-Petro, which is a David H. Arrington-owned business. Under the agreement, the two companies have designed a joint operating agreement with a plan to fully develop the project’s four all-depths contiguous drilling spacing units, with drilling to be completed in 2024.
The Midland-Petro deal is a sign Northern is taking more risks, taking more concentrated positions to build assets, said O’Grady, adding he sees it as a part of the business that will grow.
“We’re buying packages to develop over five to 10 years,” he said.
Dirlam said it will allow Northern to be a source of capital for operators to right-size projects and signing development agreements with partners will open up new opportunities for the company.
Northern is a publicly traded non-operated exploration and production company, and O’Grady estimates it has raised more than $2 billion in fresh capital over the last couple of years.
“That’s over $60 million in revenues per employee,” he said. “There’s a huge benefit if we keep operations tight and efficient.”
Both men expect to see their Permian Basin operations continue to grow, estimating more than half their capital going to the Permian next year. O’Grady sees a lot of Permian Basin working interests coming available as majors cull their interests and rationalize their portfolios.
“We’ve partnered with over 100 operators across our basins,” said Dirlam. “We generally know who’s doing the best work and look to them as partners.”
The industry trend in the Permian Basin will be not just returning capital to shareholders but preserving inventory, said O’Grady.
“Growing and depleting inventory faster isn’t great,” he said. “Investors want to see they can maintain and replenish inventory.”