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Northern Oil and Gas will also buy 20% of the oil and gas assets of EnCap Investments-backed XCL for $510 million, resulting in a total deal value of $2.55 billion.
Reuters reported in March that XCL Resources could be worth at least $2.8 billion, including debt.
A consolidation in the U.S. energy sector that triggered $250 billion worth of deals in 2023 has stretched into this year, as companies look for opportunities to deploy their cash hoard and boost their reserves.
Meanwhile, energy focused PE firms such as EnCap have used the favorable environment to cash out. Last year, the firm sold three of its Permian-focused exploration and production companies to Ovintiv for $4.275 billion, while Earthstone Energy – in which EnCap held a significant minority stake – was bought by Permian Resources for $4.5 billion.
XCL, also backed by Rice Investment Group, is one of the largest energy producers in the Uinta shale formation of Utah. It produces around 55,000 barrels of oil equivalent per day.
Denver-based SM Energy, which operates in the Eagle Ford and Midland Basins in Texas, plans to finance the acquisition through a combination of debt and cash on hand. Shares of the company fell 1% premarket after the news.
The company said its net production would increase to nearly 195,000 barrels of oil equivalent per day (boepd) with an oil mix of greater than 50%, from 152,000 boepd, of which 43% was oil in 2023.
Northern Oil and Gas expects an average production of over 10,000 barrels of oil equivalent per day of over 85% oil, and would put in nearly $45 million in capital expenditures.
The transaction is expected to close in September, after which SM Energy will serve as the operator of the assets.
(Reporting by Seher Dareen in Bengaluru; Editing by Sriraj Kalluvila)
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