Mid-Sized Shale Player Matador Strikes $1.6-Billion Delaware Deal

The acquisition of Advance Energy Partners shows that private equity groups are successfully maintaining premium valuations for core assets.

Drilling rig at sunset
Source: Getty Images.

US independent Matador Resources said it is buying privately held Advance Energy Partners for a cash sum of $1.6 billion.

The acquisition will see the mid-sized shale producer gain almost 18,500 net acres of leases in the northern Delaware Basin. It is estimated that these assets hold 106.4 million BOE in proven reserves—73% of which the buyer said is oil.

On a pro forma basis, Dallas-based Matador will operate more than 143,000 acres in the Delaware.

Matador described the purchased land as being in the “core” of the basin and that most of it is in close proximity to areas where it already operates in New Mexico. By the end of 2022, Matador reported its Delaware asset was producing almost 100,000 BOE/D.

The Advance properties include more than 200 operated and nonoperated interests in horizontal wells that are expected to yield about 25,000 BOE this quarter.

In terms of Matador’s future plans, more than 400 well locations have been identified within the asset, and it said the runway could be boosted by a further 35 upside locations. Matador added that the projected inventory from the acquisition includes 21 drilled-but-uncompleted wells which it expects to become producers by the second half of the year.

“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,” Joseph Foran, founder and CEO of Matador, said in a statement.

Terms of the deal include additional payments of $7.5 million to Houston-based Advance’s private equity backer, EnCap Investments, for each month of this year that US crude prices average above $85/bbl. Upon the deal’s announcement, West Texas Intermediate futures were trading around $80/bbl.

In reacting to the deal, Andrew Ditmar, a chief analyst at Enverus, commented that private equity groups have maintained a strong hand at the negotiating table since the middle of last year. With Advance selling for a “premium” price of $1.6 billion, he doesn’t see that changing any time soon.

“Core assets like this have gotten substantially more expensive, trading at over $2 million per location, and we anticipate that trend continuing. That will make it tough for public companies, particularly smaller ones, to compete for deals as they get more expensive,” said Ditmar.

Ditmar added that the biggest revelation to come out of the Matador deal is that it counts as “one of the smaller buyers we have seen on recent deals relative to Devon, Diamondback, and Marathon.