Matador Resources to acquire Advance Energy for $1.6bn

April 2023 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

April 2023 Issue

In the biggest deal in its 20-year history, oil and gas producer Matador Resources Company is to acquire exploration and production company Advance Energy Partners Holdings, LLC.

Under the terms of the agreement, Matador will pay an initial cash payment of $1.6bn, subject to customary closing adjustments, plus additional cash consideration of $7.5m for each month during 2023 in which the average oil price as defined in the securities purchase agreement exceeds $85 per barrel.

The company has stated that it intends to fund the transaction with a combination of cash on hand, free cash flow prior to closing and borrowings under its credit agreement, under which it expects to increase its elected commitment in connection with the transaction.

The price of US crude oil hit a near 14-year peak of $130.50 a barrel in 2022 following the Russia/Ukraine war, and while prices have retreated, they remain elevated, prompting energy producers to buy assets and take advantage of high prices.

Matador, based in Dallas, Texas, expects the acquired assets to generate forward one-year adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) of about $475m to $525m at strip prices as of mid-January 2023.

Engaged in the exploration, development, production and acquisition of oil and natural gas resources in the US, with an emphasis on oil and natural gas shale and other unconventional plays, Matador’s current operations are focused primarily on the oil and liquids-rich portion of the Wolfcamp and Bone Spring plays in the Delaware Basin in southeast New Mexico and west Texas.

“Matador is very excited by this strategic bolt-on opportunity as well as the opportunity to work with Advance and EnCap,” said Joseph Foran, founder, chairman and chief executive of Matador. “We view the acquisition of Advance as a unique value-creating opportunity for Matador and its shareholders.

“We have carefully managed and strengthened our balance sheet over time in order to be in a position for a special opportunity like this,” continued Mr Foran. “This acquisition also provides us with increased operational scale, which we expect will improve our overall rates of return and unit-of-production costs.”

A portfolio company of EnCap Investments LP, Houston-based Advance holds approximately 14,000 acres in ‘tier one’ oily areas of the Delaware Basin. The majority of its properties are operated and suitable for long horizontal wells, with its primary reservoir targets being Avalon, Bone Spring and Wolfcamp.

“We evaluated this transaction based on rock quality, the specific location and quality of these select assets, the strong existing cash flow, the multi-pay potential and the cost savings associated with developing these assets,” added Mr Foran.

Serving as legal adviser to Matador is Baker Botts LLP. Vinson & Elkins LLP served as legal adviser and JP Morgan served as financial adviser to Advance.

The transaction is subject to customary closing conditions and is expected to close early in the second quarter of 2023.

“I want to thank EnCap, the Advance team and the Matador team for their hard work and integrity in reaching a deal that is a win-win for both parties,” concluded Mr Foran. “We look forward to additional opportunities and free cash flow that this new acreage will provide for Matador.”

Fraser Tennant