Northern to Acquire 49% Stake in Ohio Utica Shale Assets

Northern Oil and Gas, Inc. NOG has made a major strategic move in the oil and gas sector by entering into a definitive agreement to acquire a 49% stake in the Ohio Utica Shale assets. This acquisition, in partnership with Infinity Natural Resources INR, is valued at $588 million (net to NOG) in cash, subject to customary closing adjustments. The transaction marks a significant milestone in NOG’s growth strategy and further strengthens the portfolio, as it expands footprint in one of the most promising natural gas regions in the United States.

Overview of the Ohio Utica Shale Acquisition

The assets acquired by NOG are located in the heart of the Utica play, in eastern Ohio. The assets encompass approximately 35,000 net acres with more than 100 gross identified undeveloped locations. The acquisition gives NOG access to one of the last remaining growth assets in the core of the Utica, which has the potential to support full rig development for several years.

NOG anticipates that these assets will produce approximately 65 MMcfe per day (2-stream, 92% gas) by 2026. This expected production is underpinned by more than 30% compound annual growth rate of output through the end of the decade, assuming a continuous development plan. The asset is expected to generate significant cash flow, with projections indicating $100 million in unhedged cash flow from operations for NOG in 2026, based on recent strip prices.

Upstream Assets in the Ohio Utica Shale

The upstream assets acquired by NOG represent a substantial opportunity for growth and long-term production. These assets are situated in the highly productive Utica Shale region, where NOG has identified substantial development potential. The acreage holds more than 100 gross locations that are yet to be developed, creating an attractive investment opportunity for long-term value generation.

With an expected 43% working interest net to NOG, the acquired assets are expected to produce significant natural gas volumes, mainly from gas-rich formations. The development strategy will involve a single-rig program, which is anticipated to generate continuous production growth through the remainder of the decade. Furthermore, the assets have a low decline rate of around 15% over the next year, with a long-term decline rate expected to stabilize around 13% in the following years, making them highly resilient and generating steady free cash flow.

The development of the upstream assets will be bolstered by a substantial capital program, estimated at around $100 million annually, helping NOG unlock additional production and value over time. This consistent reinvestment in the assets positions NOG well for sustained growth and cash flow generation.

Midstream Assets: Unlocking Value Through Integration

The acquisition of midstream assets in conjunction with upstream production represents a key value driver for NOG. The midstream system associated with the Ohio Utica Shale assets is highly integrated, with 140 miles of gathering pipeline and 90 miles of water delivery systems already in place. The existing infrastructure provides ample capacity to support production growth, with the potential for incremental expansion with minimal capital outlay.

Additionally, the midstream system is designed to facilitate direct connections to premium out-of-basin markets through the Tallgrass Rex pipeline, enabling NOG to realize superior pricing for its natural gas production. The proximity to key infrastructure and regional processing plants, such as MPLX and Blue Racer, positions the assets for significant growth, both in terms of production volumes and margins.

Midstream cash flows are expected to grow 75% by 2028, attributed to higher throughput and an increasing volume of third-party volumes. The combination of NOG’s upstream and midstream assets creates a unique opportunity to leverage existing infrastructure while driving long-term value creation.

Strategic Partnership With Infinity

In this transaction, NOG has partnered with Infinity, a proven operator in the Utica Shale region. Infinity will assume the role of the operator for the majority of the assets, with NOG actively participating in the development through cooperation and joint development agreements. This partnership is expected to enhance NOG’s ability to execute its development strategy efficiently, benefiting from Infinity’s operational expertise and focus on long-term value creation.

Both companies share a commitment to delivering strong returns to investors, and this collaboration is expected to accelerate the development of the assets, unlocking substantial value for shareholders in the years to come. The transaction also aligns with NOG’s strategy of acquiring high-quality, high-return assets that can deliver immediate cash flow while offering substantial upside potential.

Management’s Vision for the Acquisition

NOG’s CEO, Nick O’Grady, highlighted the significance of this transaction, emphasizing its long-term focus and commitment to value creation. He noted that the acquisition of the Ohio Utica Shale assets adds an integrated midstream component to NOG’s existing portfolio, which enhances its ability to generate free cash flow and withstand market volatility.

O’Grady further stated that the Utica region is a target-rich natural gas play, and the acquisition positions NOG to take advantage of the area's significant growth potential. With Infinity as an operating partner, NOG is confident that the acquisition will deliver substantial returns for both companies' shareholders. The deal is expected to add significant value to NOG’s Appalachian portfolio, offering visible growth prospects well into the next decade.

Moelis & Company is serving as the financial advisor to NOG for the acquisition, while Gibson, Dunn & Crutcher LLP is providing legal counsel. These advisors play a crucial role in ensuring the successful completion of the deal and guiding NOG through the acquisition process.

Outlook and Impact on NOG’s Growth Strategy

The acquisition of the Ohio Utica Shale assets is a pivotal move in NOG’s ongoing strategy of expansion and growth in high-return shale plays. This acquisition provides the company with a substantial foothold in one of the most productive natural gas regions in the United States, further setting NOG’s position as a leader in non-operated working interest ownership.

The long-term growth potential of the Utica Shale, combined with NOG’s expertise in capital-efficient development, positions it to generate substantial returns for investors. With the effective date of the transaction set for July 1, 2025, and closing expected by first-quarter 2026, NOG’s shareholders can look forward to a period of strong production growth and increased cash flow.

In summary, the strategic acquisition of the Ohio Utica Shale assets represents a significant step forward for Northern Oil and Gas. With a clear focus on value creation, a proven partnership with Infinity and a robust development plan, NOG is well-positioned to generate substantial long-term returns from this transaction. The company’s integrated approach to upstream and midstream assets provides a solid foundation for continued growth and value creation in the years ahead.

NOG's Zacks Rank & Key Picks

Currently, NOG has a Zacks Rank #3 (Hold), and INR carries a Zacks Rank #4 (Sell).

Investors interested in the energy sector might look at some better-ranked stocks like USA Compression Partners USAC and Oceaneering International OII, which sport a Zacks Rank #1 (Strong Buy) each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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