Denver-based Civitas Resources is offering $1 billion in senior unsecured notes to help finance its $2.1 billion acquisition of Vencer Energy and its Midland Basin assets, which was announced on Oct. 4.
In addition to close to $300 million in non-core asset sales, Civitas will lean on cash on hand and borrowings under Civitas’ credit facility to fund the deal, Civitas said in a statement. The notes will be due in 2030.
“Today’s debt offering is expected to successfully finance our accretive Vencer acquisition. There is inherent flexibility in our capital structure, and we see tremendous value in our equity at today’s levels,” Civitas CEO Chris Doyle said in an Oct. 10 statement.
“Our Vencer transaction was purposely structured with optionality, including a $550 million deferred payment due in January 2025. This flexibility allowed us to navigate recent oil price volatility and ensure we maintain low leverage,” Doyle added.
Gabriele Sorbara, an analyst at Siebert Williams, Shank & Co., said the offering was favorable and lifted the funding overhang.
“The company elected to do 100% debt financing for the $1 billion upfront cash payment due at close—expected in January 2024—versus prior commentary of including an equity component, which was weighing on the share price,” Sorbara told Hart Energy.
The Civitas statement said the notes will be subject to a “special mandatory redemption” if the Vencer acquisition is not consummated before Jan. 31, or if the company decides not to complete the acquisition.
Doyle said his company has expectations for $300 million or more in non-core asset sales and anticipates maintaining a strong capital structure “rapidly” advancing toward their 0.75 times EBITDA mid-cycle leverage target with oil at $70/bbl.
“We are transforming Civitas into a balanced, well-capitalized enterprise with an enviable portfolio of oil assets in the U.S.’ top three oil basins,” Doyle said in the statement.
The Vencer deal is another recent step toward Civitas’ expansion out of its Denver-Julesburg Basin home base.
Civitas also bought $4.7 billion of Permian Basin oil and gas assets in June, purchasing approximately 38,000 net acres from Hibernia Resources in the Midland Basin and approximately 30,000 from Tap Rock Resources in the northern Delaware Basin.
Civitas CFO Marianella Foschi commented on Civitas’ quest for scale when she spoke about the Hibernia and Tap Rock acquisitions in an early October interview with Hart Energy prior to the Vencer acquisition’s announcement.
“Scale is a very important thing for companies in our industry,” she said. “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 really hard for companies that lack scale to really drive that premium valuation.”
She said Civitas had to complete four to six quarters of “pristine execution” to position itself for ambitious asset acquisition.
“Now we have scale, and we have scale in both basins,” she said of the Midland and Delaware basins. “And with that comes a lot of flexibility and a lot of optionality.”