EOG says it welcomes Yates’ 300 employees and will continue the company’s decades-long presence in southeastern New Mexico.
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Yates drilled its first commercial oil well on New Mexico state trust land in 1924 and has assets that includes more than 1.6 million net acres that stretch from New Mexico and Colorado to Utah, Wyoming, Montana and North Dakota.
John Yates Sr., chairman emeritus of Yates Petroleum Corp. and son of founder Martin Yates Jr. said EOG was the partner of choice as company officials looked to extend Yates’ 93-year history. “As we enter a new era of unconventional resource development, we are excited to join forces with another pioneering company like EOG”.
In the Delaware Basin and Northwest Shelf of New Mexico, Yates now holds 186,000 acres each in the Wolfcamp and Bone Spring plays, whereas EOG has 168,000 acres in the Wolfcamp and 111,000 acres in the Bone Spring. The company also said it picked up 200,000 net acres in the Powder River Basin, located in southeast Montana and northeast Wyoming, doubling its net acreage in the play to 574,000. Yates holds a total of 186,000 acres in the Delaware Basin, compared to 238,000 for EOG and 138,000 acres in the Northwest Shelf compared to EOG’s 12,000 acres. Included are 81,000 net acres in the prospective Turner Oil play.
He added, “It’s a very unique opportunity to add very, very high quality acreage”.
Yates immediately adds an estimated 1,740 net drilling locations in the DE and Powder River to EOG’s growing inventory of “premium” drilling locations, a 40% increase, EOG management said. A premium drilling location is defined by EOG as a direct after-tax rate of return of at least 30 percent assuming a $40 flat crude oil price.
“Through this transaction, our premium drilling strategy is gaining added momentum”, Thomas said.
“We’ll be able to grow oil (production) with less capital and more efficiently than we do now”.
EOG will issue 26.06 million shares worth $2.3 billion, pay $37 million in cash to Yates’ owners, and assume and repay $245 million of Yates debt at closing.
Tudor, Pickering, Holt & Co.
Coker Palmer Institutional (CPI) sees the DE land worth even more. The analyst wrote in a Tuesday note that the transaction implies a $8,000 per acre, or $1.5 billion, price tag for the Delaware Basin position alone, assuming a value of $35,000 per barrel of oil equivalent per day value, or $1 billion. That price would compare with the average $12,800/acre for other recent DE transactions (assuming $35,000/flowing boe). “We see EOG paying less than $1 million per new premium location”. Closing is expected in October.
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EOG will maintain the Yates office in Artesia.
