(WO) — Civitas Resources entered into an agreement with Vencer Energy, a Vitol investment, to acquire oil-producing assets in the Midland basin of West Texas for approximately $2.1 billion.
This acquisition, subject to customary terms, conditions, and closing price adjustments, is slated to close in January 2024, with an effective date of January 1, 2024.
The acquisition is strategically priced at 2.8 times the 2024 estimated Adjusted EBITDAX, factoring in $80 per barrel NYMEX WTI and $3.50 per MMBtu NYMEX Henry Hub. This pricing compares favorably with recent transactions in the Permian Basin. Significantly, around 80% of the purchase price is underwritten by the value of proved developed and proved developed non-producing reserves, offering substantial upside in future developments. In 2024, the acquisition is expected to bolster Free Cash Flow per share by an estimated 5%. Pro forma for this deal, Civitas is poised to generate approximately $1.8 billion in Free Cash Flow in 2024 at the specified energy prices.
This acquisition is set to introduce around 44,000 net acres in the Midland Basin, with a current production of approximately 62 Mboe/d (approximately 50% oil). Pro forma for the acquisition, Civitas' 2024 estimated Permian production is expected to reach about 170 Mboe/d (approximately 50% oil). Additionally, Civitas anticipates that its 2024 total company production will be in the range of 325 – 345 Mboe/d, with total capital expenditures expected to be between $1.95 and $2.25 billion.
This strategic move will increase Civitas' portfolio with an estimated 400 gross development locations, primarily located in the Spraberry and Wolfcamp formations. Remarkably, about 40% of these new locations boast an estimated IRR of over 40% at $70 per barrel WTI. With this acquisition, Civitas will accumulate more than 1,200 high-quality oil development locations in the Permian Basin.
Higher cash flow is expected to benefit shareholders through Civitas' existing variable dividend framework. Civitas foresees a Net Debt/Adjusted EBITDAX leverage ratio of around 1.1x at closing, which is expected to improve to about 0.9x by the end of 2024 at $80 per barrel NYMEX WTI and $3.50 per MMBtu NYMEX Henry Hub. Furthermore, Civitas plans to optimize its asset portfolio by selling non-core assets, including the previously announced plan to divest approximately $300 million in non-core assets in the DJ Basin by mid-2024, with the proceeds earmarked for debt reduction.
The total consideration for the acquisition is approximately $2.1 billion, with approximately 7.3 million shares of common stock to be issued to Vencer and $1.55 billion in cash. Out of the cash amount, $1 billion will be due at closing, while the remaining $550 million will be payable on January 3, 2025. Civitas has the option to expedite the deferred cash payment to the closing of the acquisition, potentially lowering the total purchase price to $2.05 billion. Civitas intends to finance the cash portion of the purchase price through a combination of debt and equity financing.
With operations spanning three productive basins, Civitas will have the flexibility to allocate capital investments and activity levels across assets, thereby optimizing returns and mitigating potential operational and timing risks.
