Matador Resources Co. agreed to buy Permian Basin assets from EnCap Investments LP for about $1.3 billion in cash, as US shale producers continue to expand their drilling inventories in the nation’s biggest oil field.
The deal includes more than 16,000 net undeveloped acres from EnCap-backed Paloma Permian LLC in Eddy and Lea counties in southeast New Mexico, the two top producing areas in the US last year, Dallas-based Matador said in a statement Thursday. Separately, Matador said it agreed to acquire mostly undeveloped acreage in West Texas and southeast New Mexico from Ridge Runner Resources II LLC, which is also backed by EnCap, for an undisclosed value.
Shares of Matador fell 1.6% to $54.13 at 10:20 a.m. in New York.
The acquisitions highlight how operators are still willing to pay for quality drilling targets in the Delaware Basin, a prolific portion of the broader Permian formation that straddles West Texas and southeast New Mexico, even as the pace of blockbuster shale mergers has slowed following the sector’s last wave of consolidation.
The price of the Paloma purchase “continues to highlight the robust valuations being ascribed to undeveloped locations in the Delaware Basin which, in our view, continues to reflect that inventory is becoming more scarce in a world of maturing shale basins,” analysts at Tudor Pickering Holt & Co. wrote Thursday in a note to investors.
With many of the Permian’s best locations already controlled by larger producers, independent companies have increasingly focused on bolt-on acquisitions that extend drilling runways and improve operational efficiencies rather than dramatically boosting output.
The pair of acquisitions are expected to add as much as 11,600 barrels of oil-equivalent production in the third quarter, Matador said. They’ll also help boost the company’s footprint in the Delaware Basin to about 240,000 net acres, it said.
Baker Botts LLP is serving as legal adviser to Matador on the deal. RBC Richardson Barr is serving as financial adviser to Paloma, Ridge Runner and EnCap, while Vinson & Elkins LLP is serving as legal adviser to the three companies on the deal.