Magnolia Oil & Gas Corp. announced on 20 July that it has agreed to acquire fellow Texas unconventional oil and gas producer WildFire Energy for approximately $4.06 billion, including debt.
The transaction will create a company with an enterprise value of more than $9 billion and increase Magnolia's oil production by 89% to 79,000 B/D. On a combined oil and gas basis, Magnolia said the acquisition would increase average production to 159,000 BOE/D, based on both companies' second-quarter results.
The acquisition includes about 810,000 net acres in the Giddings Field between Austin and Houston, expanding Magnolia's combined position across Texas to more than 1.29 million net acres. Magnolia said the deal will increase its exposure to the Austin Chalk, Eagle Ford, and Woodbine formations.
“The acquisition of the WildFire oil and gas properties and acreage is a natural and strategic fit and most notably, it makes our business better by extending our runway of advantaged profitability and significant free cash flow generation,” Chris Stavros, Magnolia’s chairman, president, and CEO, said in a statement.
Magnolia said WildFire's proved, developed, and producing oil-weighted assets have a 29% base decline rate. The company also sees significant future development potential in the Austin Chalk, along with additional upside in the Eagle Ford and Woodbine horizons. The Houston-based operator noted that the acreage's proximity to US Gulf Coast markets provides access to premium pricing.
Analysis from oil and gas analytics firm Enverus estimates that the deal extends Magnolia's drilling inventory by 70%, providing more than 1,000 net locations capable of supporting 10,000-ft laterals. In a research note, Enverus said WildFire was among a limited number of private-equity-backed producers capable of adding so many potential well locations to a buyer's portfolio and that the transaction represents the largest Eagle Ford-focused acquisition in more than a decade.
“The chance to buy WildFire was likely too unique an opportunity for the company to pass, given its hand-in-glove fit with existing operations, depth of inventory, and opportunity to add low-decline, oil-weighted production,” said Andrew Dittmar, principal analyst at Enverus Intelligence Research.
The deal also comes amid a slow pace of US-based mergers and acquisitions during the first half of the year and could signal an acceleration in buying activity. Dittmar added, “The transaction bodes well for continued strength in the deal market as more of the select private-equity-backed companies with high-quality oil inventory take advantage of favorable commodity prices to exit their positions.”
Magnolia expects to realize approximately $100 million in annual cost savings and corporate synergies from the combination. The acquisition also includes more than 500 miles of pipeline infrastructure and a sand mine that Magnolia said will supply nearly 80% of the combined company's well-stimulation requirements.
WildFire shareholders will receive 32.2 million shares of Magnolia common stock, and Magnolia will assume approximately $600 million in outstanding debt due in 2029. The company will finance the remainder of the transaction through a combination of cash, debt, and newly issued equity. The deal is expected to close by the third quarter of this year.