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Civitas Resources Inc. is acquiring oil-producing assets in the Midland Basin of west Texas in a cash and stock transaction for a total consideration of approximately $2.1 billion from Vencer Energy, subject to customary terms, conditions, and closing price adjustments.
The acquisition, expected to close in January 2024 with an effective date of January 1, 2024, will add approximately 44,000 net acres in the Midland Basin to Civitas’ portfolio and current production of approximately 62,000 barrels of oil equivalent per day (boepd), of which 50 percent is oil.
The total consideration of approximately $2.1 billion consists of approximately 7.3 million shares of Veritas common stock to be issued to Vencer and $1.55 billion in cash, of which $1 billion will be due at closing. The remaining $550 million will be payable on January 3, 2025, Civitas said in a news release Wednesday. Civitas has the option to accelerate the deferred cash payment to the closing of the acquisition, which would lower the total purchase price by $50 million to $2.05 billion. The company plans to fund the cash portion of the purchase price with a combination of debt and equity financings.
Pro forma for the acquisition, Civitas estimates its 2024 Permian production to be about 170,000 boepd, total company production to be 325,000 to 345,000 boepd, and total capital expenditures to be $1.95 billion to $2.25 billion.
Civitas said the acquisition to add an estimated 400 gross development locations located primarily in the Spraberry and Wolfcamp formations. Approximately 40 percent of the new locations have an estimated internal rate of return of more than 40 percent at $70 per barrel West Texas Intermediate (WTI). Upon closing, Civitas will have more than 1,200 high-quality oil development locations in the Permian Basin.
“This was a unique opportunity to capture high-quality oil assets at a very attractive price”, Civitas President and CEO Chris Doyle said. “In recent months, we have created a quality, scaled position in the heart of the Permian Basin. We continue to advance our strategic pillars by adding premium inventory, increasing Free Cash Flow, and delivering the industry’s best cash returns to shareholders. Upon closing, our portfolio will be balanced between the Permian and DJ basins, which reduces operational risk and makes us a stronger and more sustainable enterprise”.
Civitas said it intends to optimize its asset portfolio through non-core asset sales, including its previously announced plans to sell approximately $300 million in non-core assets in the DJ Basin by mid-2024, with proceeds allocated to debt reduction.
With three producing basins, Civitas noted that it will have the ability to flex capital investments and activity levels between assets to maximize returns, ensure desired outcomes, and mitigate potential operational and timing risks.
In August, Civitas announced the closing of its acquisitions in the Permian Basin for an aggregate consideration of approximately $4.7 billion. Civitas has earlier agreed to purchase a portion of Tap Rock’s Delaware Basin assets for $2.45 billion, which includes $1.5 billion in cash and approximately 13.5 million shares of Civitas common stock valued at approximately $950 million, subject to customary anti-dilution and purchase price adjustments. The assets include approximately 30,000 net acres, primarily located in Eddy and Lea counties, New Mexico.
Civitas had also agreed to purchase Hibernia’s Midland Basin assets for $2.25 billion in cash, subject to customary purchase price adjustments. The assets include approximately 38,000 net acres in Upton and Reagan counties, Texas.
“This is a great day for Civitas, an organization with scale, portfolio diversity, and durability”, Doyle said in an earlier statement. “We continue to perform exceptionally well and have strengthened our company with the addition of top-tier assets in the heart of the Permian Basin. Our diversified portfolio of oil assets will provide us with capital allocation flexibility and a greater ability to direct investments to our highest return opportunities. Our focus today is on effectively integrating our Permian assets into Civitas and delivering on our plan to profitably grow our business, while reducing debt and returning significant cash to shareholders”.
In the second quarter of 2023, Civitas reported average daily sales of 173,500 boepd, of which 49 percent was crude oil, 28 percent was natural gas, and 23 percent was natural gas liquids, according to the statement.
To contact the author, email rocky.teodoro@rigzone.com
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