Denver-based Civitas Resources has signed two definitive agreements to acquire oil-producing assets in the Midland and Delaware basins of west Texas and New Mexico from affiliates of Hibernia Energy III LLC and Tap Rock Resources LLC for $4.7 billion. The purchase marks Civitas’ entry into the Permian Basin, having been a Colorado Denver-Julesburg (DJ) Basin pure play operator up until now.
Civitas was formed in May 2021 as the result of the combination of two mid-sized producers, Bonanza Creek Energy and Extraction Oil and Gas, in a $2.6-million deal.
A month later, Civitas acquired Crestone Peak Resources, bringing Civitas’ position in the DJ Basin to more than 500,000 net acres.
Civitas will purchase a portion of Tap Rock’s Delaware Basin assets for $2.45 billion, which includes $1.5 billion in cash and around 13.5 million shares of Civitas common stock valued at approximately $950 million. Tap Rock will retain its ownership of the Olympus development area.
The assets in the deal include about 30,000 net acres, primarily located in Eddy and Lea counties, New Mexico. First-quarter 2023 average production was 59,000 BOE/D, of which 52% was oil. The company will have an inventory of approximately 350 high-quality locations in the Delaware Basin.
Civitas has also agreed to purchase Hibernia’s Midland Basin assets for $2.25 billion in cash. The assets include 38,000 net acres in Upton and Reagan counties, Texas, in the Midland Basin. First-quarter 2023 average production was approximately 41,000 BOE/D, of which 56% was oil. The company will have an inventory of around 450 high-quality locations on a contiguous acreage position in the Midland Basin.
Both Tap Rock and Hibernia are portfolio companies of funds managed by NGP Energy Capital Management.
“These accretive and transformative transactions will immediately create a stronger, more balanced and sustainable Civitas,” said Chris Doyle, president and chief executive of Civitas. “By acquiring attractively priced, scaled assets in the heart of the Permian Basin, we advance our strategic pillars through increased free cash flow and enhanced shareholder returns. We will soon have nearly a decade of price-resilient, high-return drilling inventory. Our strong capital structure allowed us to capture these transformational assets, and, importantly, behind the strength of the pro forma business, we have a clear path to reduce leverage and maintain long-term balance sheet strength.”
The combined transactions will add approximately 68,000 net acres (90% held-by-production) in the Midland and Delaware basins and will add combined proved reserves of approximately 335 million BOE, as of year-end 2022. The transactions will increase Civitas’ existing production by 60%, adding approximately 100,000 BOE/D (54% oil) of current production with the acquired assets expected to average approximately 105,000 BOE/D from close through year-end 2023.
Combined, the acquisitions will add about 800 gross locations with approximately two thirds having an estimated internal rate of return of more than 40% at $70/bbl WTI and $3.50/MMBtu Henry Hub NYMEX pricing. The company’s pro forma oil-weighting is expected to increase to nearly 50%.
Both transactions are expected to close in the third quarter of 2023 with effective dates of 1 July 2023.
“With these sales, private-equity exits in the Permian have comfortably topped $10 billion in 2023 as sponsors stampede for the exits amid strong demand for their inventory from public buyers,” said Andrew Dittmar, director, Enverus Intelligence Research. “EnCap has led the charge with monetizations of over $8 billion in investments in the play, and now peer NGP is getting into the act as well. With a few exceptions, private-equity firms are more likely to be looking outside the Permian Basin for new investment opportunities as they have been priced out of acquiring assets there. For the public companies active in the basin, the next wave of M&A could come from corporate consolidation as remaining private acquisition opportunities are scarce.”
