Jordan Blum, editorial director, Hart Energy: We're here at Hart Energy's Energy Capital Conference in Dallas and I'm here for this Hart Energy LIVE Exclusive Interview with Marianella Foschi, the CFO of Civitas Resources. Obviously your company just bought big into the Permian Basin, almost $5 billion in deals with Tap Rock Resources and Hibernia Energy for both the Delaware and Midland Basins. Can I just get you to elaborate on why do it essentially?
Marianella Foschi, CFO, Civitas Resources: Scale is a very important thing for companies in our industry. If you look at what creates value these days, it's asset quality, it's balance sheet, it's capital return programs but it's very hard for companies that lack scale to really drive a premium valuation. So this deal for us gave us the scale that we wanted and at the same time gave us the asset quality that we were looking for and it gave us the scale day one.
JB: Very good. And you're more than doubling your production.
MF: We're doubling our cashflow. Production is about 70%, it's a little more oily and it has a little bit higher margins given its proximity to markets. But in terms of where we are as a company, doubled cashflow, we're currently about a $12 billion enterprise value company. So certainly with these deals it got us to where we wanted to be and we're great with where we are. Asset quality is high, definitely no need to bolt on. Likely we could continue to bolt on if we find the right accretive acquisitions to do so.
JB: So both of these assets are backed by NGP. Was it almost like one big acquisition or two completely separate deals?
MF: Two completely separate transactions. I know the timing was almost coincidental. We've been pursuing Hibernia for some time. We liked the asset, we’ve done a ton of work on it. About late 2022, we started evaluating pretty heavily. The Hibernia asset has very strong operators around it, so we're around Pioneer and Endeavor on the Delaware side. That piece of the process came a little bit later. It's a great rock along with the Midland Basin. The Delawares is a little more challenged from a rock perspective, but it's great rock and it has a lot of different formation. Neither of those deals give us scale individually and so we wanted to do both at the same time. Tap Rock was a part of a much broader footprint that we only bought about half of that company, but between those two transactions we inherited about 107,000 a day of production. So very meaningful scale day one and alongside 800 drilling locations gave us the runway that we needed to continue with that production broadly flat.
JB: So historically, the company's been a D-J Basin pure play. Can you kind of take me through the thinking on these deals? It's entering the Permian, it's scale, diversification or maybe some Colorado regulatory concerns too? Is it all and the above? What matters the most?
MF: Sure. We spent 2021 building the foundation of this company, which is in the D-J. We put five companies together, three public, two private ones and that foundation got us to about 170,000 a day of production across those five companies, about five or six billion enterprise value. That gave us the footprint to be able to evaluate assets out of basin. We had a completely on lever balance sheet, we had drive power. We didn't have the cost and capital or multiple, quite frankly, to allow us to really compete. We went through the course of 2022, looking at a lot of asset and company deals. We were not able to get comfortable that those valuations fit the framework that we were going for and that were created to our multiples. It took really 2023 for the commodity price to normalize a little bit as well as our equity to recover and with the track record of four to six quarters of pristine execution to get us to a place that we were able to get out and acquire these assets. And so now we have scale and we have scale in both basins. And with that comes a lot of flexibility and a lot of optionality and our stock price and our equity performance has reflected that as well.
JB: Fantastic. Now it's integration time.
MF: It is. Integration is something that we've done very well in the past. It is an aspect that you start working on integration when we start doing due diligence on the deal. Part of integration is just being reasonable and being conservative with your assumptions. And so for us when, if you look our track record in the D-J, we beat consistently every quarter of our production targets for the last six quarters. We plan on doing the same in the Permian. We take execution very seriously, we think it's a driver of valuation and we've seen it in our stock. It's hard to say exactly what, it's hard to isolate, but that among other things, we think it's certainly reflective of how we perform year to date. Year to date our TSR is about 52% and industry average by closer to mid-twenties and we think execution is part of it.
JB: Great. And thanks again so much for joining us here at the Energy Capital Conference. Really appreciate it. To read and watch more, please visit online at hartenergy.com
