SM Energy in $2bn Uinta basin deal

Oil and gas producer SM Energy will boost its production footprint in Utah's Uinta basin through a $2bn deal to buy assets from private equity-backed XCL Resources.

As part of the deal, producer Northern Oil and Gas will also acquire 20pc of the XCL assets being sold for $510mn, giving a total transaction value of $2.55bn.

The acquisition will increase SM Energy's oil mix to over 50pc, as well as lift its core net acreage by 14pc. It also raises SM Energy's net production for next year to 195,000 b/d of oil equivalent (boe/d), and increases inventory life to more than 12 years.

The Uinta basin is known, in part, for producing waxy crudes that are more challenging to transport but are in demand as a feedstock for motor oil and lubricants.

The deal is an outlier given most consolidation in the US upstream to date has focused on the Permian basin in Texas and New Mexico, and SM Energy's traditional focus has been on the Midland basin and South Texas

"However, with the Permian increasingly consolidated and prices high it makes sense SM would look elsewhere to find additional inventory," said Andrew Dittmar, principal analyst at Enverus Intelligence Research.

SM Energy, which will operate the assets, plans to finance the acquisition through a mix of debt and cash.

XCL is backed by EnCap Investments and Rice Investment Group. Earlier this month, US independent Matador Resources acquired an EnCap-backed producer for $1.9bn to expand in the Permian's Delaware sub-basin.

By Stephen Cunningham