Dallas-based Matador Resources Co. announced Jan. 24 that a subsidiary agreed to acquire EnCap Investments-backed Advance Energy Partners Holdings for an initial cash payment of $1.6 billion.
The deal also included additional cash of $7.5 million for each month during 2023 in which the average oil price as defined in the securities purchase agreement exceeds $85 per barrel.
Advance owns oil and natural gas producing properties and undeveloped acreage located in Lea County, New Mexico, and Ward County, Texas.
Matador management expects to close the transaction early in the second quarter. The company plans to fund it with cash on hand, free cash flow before closing and borrowings under the company’s credit agreement, which was recently boosted by 13 percent to $2.25 billion.
Matador’s in-house counsel included co-chief operating officer and chief of staff Craig Adams and general counsel and M&A head Bryan Erman as well as A&D attorney Bradley Hart and corporate counsel Cale Curtin.
The company had assistance from Adams’ and Erman’s previous firm Baker Botts, including corporate partners Preston Bernhisel and Jon Platt in Dallas and associate Rusty Shellhorn in Dallas and Brendan LeMay in New York.
Also on the Baker Botts team were tax partner Steve Marcus and senior associate Jordan Hahn of Dallas, finance partners Luke Weedon in Dallas and Clint Culpepper in Austin, environmental senior counsel Aileen Hooks in Austin, employee benefits partner Jason Loden in Dallas and antitrust partner Jeffrey Oliver and special counsel Michael Bodosky in Washington, D.C.
Vinson & Elkins counseled EnCap led by partner Bryan Loocke with assistance from senior associate Michael Zarcaro and associates Bradley Oster, Kene Obi, Laura Byrd and Hunter Michielson.
Other V&E team members included partners John Lynch and Todd Way, associates Dan Henderson and Sarah Coe and law clerk Quentin Manuel on tax; partners Mike Marek, Jackson O’Maley and Matt Strock, senior associate David Lassetter and associates Houston Morgan and Drew Clements (corporate); partner Becky Baker (employment/labor); partner David D’Alessandro and associates Maddison Riddick and Roxy Barbera (executive compensation/benefits); partner Matt Dobbins (environmental); and partner Hill Wellford and senior associate Ryan Will (antitrust).
JP Morgan provided Advance financial advice.
Joseph Wm. Foran, Matador’s Founder, chairman and CEO, said in a press release that company is excited by the strategic bolt-on opportunity as well as the opportunity to work with Advance and EnCap.
“We view this transaction as a unique value-creating opportunity for Matador and its shareholders,” he said. “We evaluated this transaction based on rock quality, the strong existing production and cash flow profile, the potential reserves additions, the high-quality inventory, the available midstream opportunities and the strategic fit within our existing portfolio of properties.”
The addition is expected to generate forward one-year adjusted EBITDA of $475 milion to $525 million at strip prices as of mid-January 2023, which the company said represents an attractive purchase price multiple of 3.2 times.
According to TPH analyst Jeoffrey Lambujon, the transaction makes sense at first blush given its valuation metrics, management’s consistent transparency regarding opportunistic M&A for upstream and midstream assets and the balance sheet strength and free cash flow that support the activities.
Lambujon is curious about the breakdown of stated inventory by zone, wells drilled on the acreage so far and the magnitude of potential midstream opportunities. Matador already owns Pronto Midstream, which operates in Lea County, New Mexico.