HomeMost PopularCivitas Resources Makes Strategic Acquisition to Strengthen Permian Position

Civitas Resources Makes Strategic Acquisition to Strengthen Permian Position

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View of the pumpjack in the oil well of the oil field. The arrangement is commonly used for onshore wells producing little oil. Pumpjacks are common in oil-rich areas.

The Assets:

Civitas Resources, Inc. (NYSE:CIVI) is bolstering its position in the Permian Basin through the acquisition of Vencer Energy, a private player in the Midland Basin. Vencer’s 44,000 net acres, mainly in Upton County, Texas, combined with Civitas’ existing assets, will further enhance the company’s presence in this prolific oil and gas region.

Vencer Energy currently produces 62.5 thousand barrels of oil equivalent per day (MBOEpd), with plans to reach a stable production plateau of 50 to 60 MBOEpd range in the future. The acquisition includes 400 gross locations and top quartile performance according to well data.

The Price Tag: $2.11 Billion

The acquisition is valued at $2.11 billion, which is 2.8x forecasted EBITDA for 2024. Civitas plans to finance the deal through a combination of equity and debt offerings, although the company has not yet announced specific details regarding the split between the two. To help fund the acquisition, Civitas also intends to sell $300 million in non-core DJ Basin holdings.

Paying The Tab: Equity, More Equity, and Debt

In exchange for the acquisition, Vencer Energy will receive 7.3 million shares of Civitas Resources, equivalent to approximately $560 million, based on an average price of $76.70 per share. Additionally, Civitas will pay Vencer $1.0 billion in cash upon deal close, with an additional $550 million deferred cash payment due in January 2025. The cash portion of the acquisition will be financed through debt and equity offerings.

Impact: Strengthened Permian Position

Upon closing the acquisition, Civitas Resources expects to achieve a production rate of 325 to 345 MBOEpd, with at least 50% of the company’s total production coming from the Permian Basin. The acquisition will provide Civitas with 1,200 Permian locations, offering greater flexibility in allocating capital expenditures. The company remains focused on maintaining manageable leverage levels and returning capital to shareholders, with a projected dividend yield of 14%.

Analyst Commentary and Conclusion

Analysts predict that the acquisition will have a minimal impact on Civitas Resources’ balance sheet metrics, with a net debt/EBITDA ratio projected to be 1.1x at closing, decreasing to 0.9x by the end of 2024. The company’s conservative approach to operating costs and adherence to a price deck of $80 oil and $3.50 as a check on financials provide further stability.

Overall, Civitas Resources’ strategic acquisition of Vencer Energy positions the company for increased production and long-term success in the Permian Basin. With a focus on responsible financial management and a strong asset base, Civitas is a compelling investment option in the energy sector.

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