Vital Energy has announced the signing of a definitive joint purchase and sale agreement to acquire the assets of Point Energy Partners, a Vortus Investments portfolio company. The transaction will significantly increase the Company’s operational scale and footprint in the Delaware Basin and add high-value development inventory.
The agreement was signed in partnership with Northern Oil and Gas, Inc. ('NOG'). Under the terms of the agreement, the two companies will acquire Point Energy’s assets in an all-cash transaction for total consideration of $1.1 billion. Vital Energy agreed to acquire 80% of Point’s assets, with NOG acquiring the remaining 20%. The transaction is expected to close by the end of the third quarter of 2024 with an effective date of April 1, 2024, subject to customary closing conditions.
Closing price adjustments are expected to total approximately $75 million, reducing total consideration to approximately $1.025 billion. Vital Energy expects to fund its $820 million portion, net of expected purchase price adjustments, through the use of its credit facility, which was recently expanded to $1.5 billion. Wells Fargo, National Association has committed to the increased elected commitment upon closing of the transaction.
Highlights (all figures are net to Vital Energy):
Attractively priced, immediately accretive: The transaction is priced at approximately 2.4x next 12 months (NTM) Consolidated EBITDAX1, as of the effective date, which compares favorably with Vital Energy’s current valuation and recent transactions in the basin. The purchase price is substantially underwritten by the value of proved developed producing reserves and eight work-in-process wells. Using SEC pricing, third-party reserve engineer Ryder Scott estimates the PDP reserves and work-in-process wells to have a PV-10, as of the effective date, of $742 million and $71 million, respectively. At closing, the transaction is projected to be immediately accretive to key financial metrics, including a >30% increase to NTM Adjusted Free Cash Flow1 and a >20% increase to NTM Consolidated EBITDAX.
Adds high-return inventory and oil-weighted production: The transaction is expected to add 68 gross inventory locations (49 net) with an estimated average breakeven oil price of $47 per barrel NYMEX WTI. The assets include approximately 16,300 net acres and net production of approximately 30.0 thousand barrels of oil equivalent per day ('MBOE/d') (67% oil), as of the effective date.
Robust hedges help ensure deleveraging: Vital Energy recently hedged a significant portion of its expected 2025 oil production to underpin cash flows and support leverage reduction targets. Leverage is expected to be approximately 1.5x at closing. At current strip commodity prices, the Company expects to reduce its leverage to approximately 1.3x within 12 months.
Expands Delaware Basin operational scale: Over the past 15 months, Vital Energy has built a high-quality, core operating position in the Delaware Basin, complementing its substantial Midland Basin leasehold. This transaction will increase the Company’s Delaware Basin position by approximately 25% to 84,000-net acres. Post closing, the Delaware Basin will comprise more than one third of the Company’s oil production.
'This bolt-on is a great fit for us, adding high-value inventory and production in the heart of our core operating areas. Furthermore, it expands our growing Delaware Basin position and balances our Permian operations. We expect to continue to demonstrate our ability to capture, integrate and create substantial value on acquired assets through optimized development plans, lower capital costs and proven operating practices, resulting in higher future cash flows,' said Jason Pigott, President and Chief Executive Officer.
Development and Production Expectations
Post closing, Vital Energy plans to moderate development activities on the properties relative to Point’s recent program. In March 2024, Point turned-in-line ('TIL') a 15-well package, driving recent elevated production rates. No new TIL’s are planned prior to the closing of the transaction, leading to an estimated natural decline in daily production of approximately 50% from peak rates in April 2024.
With moderated activity levels and natural declines, fourth-quarter 2024 production on the Point asset is expected to average approximately 15.5 MBOE/d (64% oil). Vital Energy expects to invest approximately $45 million on the new properties during the fourth quarter of 2024, operating one drilling rig and completing seven wells.
The Company estimates a one rig development program would facilitate the drilling and completion of 12 wells over a 12-month period, resulting in total production of approximately 15.0 MBOE/d (64% oil) and capital investments of approximately $100 million.
Advisors
Houlihan Lokey is serving as lead financial advisor to Vital Energy with Citi serving as a co-advisor. Gibson, Dunn & Crutcher LLP is serving as legal counsel. Wells Fargo Securities, LLC advised on the senior secured credit facility. DrivePath Advisors is serving as financial communications advisor.
Kirkland & Ellis LLP is serving as NOG’s legal counsel. Jefferies LLC served as financial advisor and Akin Gump Strauss Hauer & Feld LLP is serving as legal counsel to Point and Vortus.
Source: Vital Energy
