Vital Energy, formerly known as Laredo Petroleum, is exiting its long ride through the Permian Basin with a $3.1 billion sale to Crescent Energy.
Crescent Energy, meanwhile, adds a foundational new position in the Permian, complementing the company’s portfolios in the Eagle Ford and Uinta basins.
Crescent is adding attractive future inventory at a relatively cheap price to enter the nation’s top oil-producing basin. The all-stock transaction values Vital at approximately $750 million and includes the assumption of around $2.3 billion of net debt.
“Despite the slightly higher premium compared to past deals, Crescent says it is acquiring Vital at less than the value of the company’s existing production,” Andrew Dittmar, principal analyst at Enverus Intelligence Research, wrote in an Aug. 25 report.
The purchase price “highlights the relative attractive valuation of public E&Ps from a buyer’s perspective” compared to sky-high asking prices for private acquisition opportunities in the Permian, he said.
Vital’s equity value has been cut in half since the start of the year and down around 60% year-over-year, pressured by falling crude prices and a heavy debt load.
Vital posted a net loss of $582.6 million in the second quarter, driven by a $427 million non-cash pre-tax impairment loss on its Permian oil and gas properties. The decline in the 12-month trailing regulator-mandated oil price calculation forced Vital to write down assets.
KeyBanc Capital Markets Analyst Tim Rezvan wrote that a sale by Vital “is a reasonable decision amid a challenging environment for organic deleveraging.”
KeyBanc had been supportive of Vital’s slew of acquisitions in 2023, giving the company’s new scale and runway in the Permian. However, the $880 million acquisition of 80% of Point Energy Partners II’s assets last summer was “a strategic mistake that leaves [Vital] in its current strategic bind,” Rezvan said.
“That cash outlay left the balance sheet vulnerable to the type of downturn in commodity prices we see today, possibly forcing the board's hand to pursue strategic alternatives,” he wrote Aug. 24 after rumors of deal talks emerged late last week.
Potential change-in-control payments could have also encouraged Vital management to pursue a sale, according to KeyBanc.
According to regulatory filings, Vital President and CEO Jason Pigott could receive a $14.2 million payout in the event of a termination without cause or a resignation for good reason following a change in control. Bryan Lemmerman, executive vice president and CFO, stands to earn over $7 million.
“We view these payments as reasonable and likely to incentivize management to engage in good faith discussions,” Rezvan wrote.
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Laredo to Vital
Laredo Petroleum was founded in 2006 by U.S. oil and gas industry veteran Randy Foutch, who previously built E&Ps Colt Resources, Lariat Petroleum and Latigo Petroleum. Laredo would eventually rebrand to Vital Energy in early 2023.
Laredo emerged as an early trailblazer in the horizontal revitalization of the Permian Basin, drilling its first horizontal wells in 2009 after assembling a substantial Midland Basin position in Glasscock and Reagan counties, Texas.
Vital still holds a blocky, contiguous position on the eastern flanks of the Midland Basin today. Presenting at a Hart Energy conference in 2016, Foutch noted the legacy Laredo acreage is in the thickest part of the Midland Basin, offering more than 4,500 ft of stacked pay potential.
Siebert Williams Shank & Co. Managing Director Gabriele Sorbara said the legacy Laredo assets were generally gassier than the company’s oilier peers in Midland’s core.
So Vital went on a buying spree in 2023, spending $1.8 billion combined with acquisitions from several private Permian producers, including Grey Rock, Henry Resources, Tall City, Maple Energy Holdings, Forge Energy II Delaware and Driftwood Energy Operating.
“So, they did upgrade from what they had initially,” Sorbara told Hart Energy. “They went up to Howard [County], they went to the Delaware.”
Vital drilled some “big wells in the Delaware, but those ones were gassy,” he added.
“And everybody seems to want oil, especially when you’re in the Permian and you’re getting negative pricing at Waha.”
Vital followed on in 2024 with the acquisition of 80% of Point Energy Partners’ assets in the Delaware Basin. Northern Oil & Gas (NOG) acquired the other 20% non-operated stake in Point.
Heading into 2025, Vital had pieced together a shotgun-blast portfolio, with acreage scattered across different pockets of the Permian.
Operating on smaller, fragmented and sometimes stranded leases, Vital was at the forefront of experimenting with new Permian well designs, including so-called U-turn and J-hook wells.
Vital also targeted exploration of the Permian’s deeper zones, including the Wolfcamp C, Wolfcamp D and Barnett Shale formations.
Crescent estimates it will hold around 1,000 gross locations in the Permian after closing the Vital acquisition.
Crescent plans to significantly reduce activity on the Vital assets after closing. Vital is running four rigs across its acreage, which could fall to one to two rigs under Crescent’s ownership.
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Divestiture plans
Crescent’s management made clear its intent to divest non-core assets to reduce debt following the Vital acquisition.
Crescent was formed in 2021 from the all-stock merger of Independence Energy LLC, the E&P arm of private investment firm KKR’s Energy Real Assets group, with publicly held Contango Oil & Gas.
Independence operated in the Eagle Ford, Rockies, Permian and Midcontinent. Contango’s portfolio was in the Midcontinent, Permian and Rockies. Crescent still holds working interest properties in the Midcon, Barnett Shale, Permian and California today, according to regulatory filings.
Analysts say Crescent could look to divest properties in the Barnett Shale or conventional assets in Wyoming to reach a $1 billion divestiture target.