Permian Resources picks up Oxy’s Barilla Draw in $818MM deal

Occidental Petroleum agreed July 29 to sell its Barilla Draw assets in the southern Delaware Basin as part of an $817.5 million sale to Permian Resources Corp. The Barilla Draw assets cover about 27,500 net leasehold acres and 9,150 net royalty acres that can be bolted directly onto PR’s existing position in Reeves County, Texas. The transaction also includes 2,000 net leasehold acres and 750 net royalty acres in Eddy County, New Mexico, offsetting PR’s Parkway assets.

Net production from the acquired assets is expected to be 15,000 boe/d (55% oil) with low decline. PR will also gain more than 200 gross operated drilling locations with about 80% NRI. The Barilla Draw properties come with more than 100 miles of oil and gas pipelines, a saltwater disposal system, a 25,000 bbl/d water recycling facility and more than 10,000 surface acres for midstream systems. With closing expected in Q3, PR plans to begin developing the Reeves County acreage in Q4.

“Consistent with our strategy of pursuing sound M&A opportunities, this bolt-on acquisition adds core inventory, which immediately competes for capital and is accretive to key metrics over both the short- and long-term,” PR co-CEO James Walter said. The company values the transaction at 3.4x estimated 2025 EBITDAX and 17% free cash flow yield, assuming a maintenance production profile and market prices of $75/bbl and $3.00/MMBtu. The Midland-based company expects the transaction to deliver accretion to FCF per share of over 5% per year during the next two, five and 10 years.

Houston-based Oxy intends to use the proceeds from PR as well as $152 million from several separate dispositions completed this year toward debt reduction. The company ended Q1 with $19.5 billion in net debt and is expected to add some more to fund the $9.1 billion cash portion of its $12 billion acquisition of CrownRock LP, scheduled to close in August.

Oxy aims to complete a $4.5-6.0 billion divestiture program within 18 months of the CrownRock closing. In early May, Reuters reported Oxy was looking to sell Barilla Draw, which sources at the time said could attract more than $1 billion.

PR intends to pay for the bolt-on acquisition through capital market transactions. For starters, it commenced an underwritten public offering of 26.5 million Class A common shares, which would gross $406 million if priced at the stock’s prior-day close on the NYSE while increasing total shares outstanding by 3%.

PR also announced a $750 million private placement of senior unsecured notes due 2033. Net proceeds will first go toward funding a tender offer to buy the company’s $300 million outstanding in 7.75% senior unsecured notes due 2026 at a redemption price of 100% plus accrued and unpaid interest. The remainder would go toward the Oxy deal.

Oxy was advised on the divestiture by RBC Capital Markets and White & Case LLP. Permian Resources named Goldman Sachs &Co. and Morgan Stanley as underwriters for the equity offering and J.P. Morgan as exclusive dealer manager for the tender offer.

PR has been an active participant in the M&A market over the past several months. Last November, it closed a $4.5 billion all-stock acquisition of Earthstone Energy. Since then, it has announced $175 million in bolt-on acquisitions in Eddy County and an acreage swap in Lea County, New Mexico.