Acquisition increases Free Cash Flow and balances portfolio between Permian and DJ Basins
Civitas Resources has signed an agreement with Vencer Energy, a Vitol investment, to acquire oil producing assets in the Midland Basin of west Texas for a total consideration of approximately $2.1 billion, subject to customary terms, conditions, and closing price adjustments. The Acquisition is expected to close in January 2024 with an effective date of January 1, 2024.
Highlights
- Attractively priced and immediately accretive to Free Cash Flow per share: The Acquisition is attractively priced at 2.8x 2024 estimated Adjusted EBITDAX at $80/Bbl NYMEX WTI and $3.50/MMBtu NYMEX Henry Hub, which compares favorably to recent transactions in the Permian Basin. Approximately 80% of the purchase price is underwritten by the value of proved developed and proved developed non-producing reserves, with significant upside in future developments. The Acquisition is expected to deliver an estimated 5% uplift to Free Cash Flow per share in 2024. Pro forma, Civitas expects to generate approximately $1.8 billion of Free Cash Flow in 2024 at $80/Bbl and $3.50/MMBtu.
- Increases Permian Basin scale, balancing Civitas’ portfolio between premium Permian and DJ positions: The Acquisition will add approximately 44,000 net acres in the Midland Basin and current production of approximately 62 Mboe/d (approximately 50% oil). Pro forma for the Acquisition, Civitas’ 2024 estimated Permian production is expected to be about 170 Mboe/d (approximately 50% oil).
Pro forma for the Acquisition, Civitas expects that its 2024 total company production will be 325 – 345 Mboe/d and total capital expenditures will be $1.95 – $2.25 billion.
- Adds premium, low breakeven oil inventory in the Midland Basin: The Acquisition will add an estimated 400 gross development locations located primarily in the Spraberry and Wolfcamp formations. Approximately 40% of the new locations have an estimated IRR of more than 40% at $70/Bbl WTI. Pro forma for the Acquisition, Civitas will have more than 1,200 high-quality oil development locations in the Permian Basin.
- Maintains peer-leading shareholder return program, strengthens capital structure: Higher cash flow will benefit shareholders through Civitas’ existing variable dividend framework. Civitas expects its Net Debt/Adjusted EBITDAX leverage ratio to be approximately 1.1x at closing and improve to approximately 0.9x at year-end 2024 at $80/Bbl NYMEX WTI and $3.50/MMBtu NYMEX Henry Hub. Civitas intends to optimize its asset portfolio through non-core asset sales, including its previously announced plans to sell approximately $300 million in non-core assets in the DJ Basin by mid-2024, with proceeds allocated to debt reduction.
'This was a unique opportunity to capture high-quality oil assets at a very attractive price,' said Chris Doyle, Civitas President & CEO. 'In recent months, we have created a quality, scaled position in the heart of the Permian Basin. We continue to advance our strategic pillars by adding premium inventory, increasing Free Cash Flow, and delivering the industry’s best cash returns to shareholders. Upon closing, our portfolio will be balanced between the Permian and DJ basins, which reduces operational risk and makes us a stronger and more sustainable enterprise.'
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Source: Civitas Resources
