Civitas Resources Inc., a US shale oil producer, agreed to acquire assets from companies controlled by private equity firm NGP Energy Capital Management for about $4.7 billion in cash and stock to expand for the first time into the Permian Basin.
(Bloomberg) — Civitas Resources Inc., a US shale oil producer, agreed to acquire assets from companies controlled by private equity firm NGP Energy Capital Management for about $4.7 billion in cash and stock to expand for the first time into the Permian Basin.
Civitas said Tuesday in a statement it will purchase some assets from Tap Rock Resources in the Delaware Basin section of the Permian for $2.45 billion. The Denver-based company is also buying Hibernia Energy III’s assets in the Permian’s Midland region for $2.25 billion.
Also See: Civitas to Sell $2.7 Billion of Junk Bonds to Fund Acquisitions
The combined transaction is the biggest deal yet for Civitas, which has led the gradual consolidation among small- and mid-sized US shale players in the past two years. The strategy has been driven by investment firm Kimmeridge Energy, which says it’s the company’s third-largest shareholder and has campaigned publicly for more mergers in the sector as well as improved shareholder returns.
Civitas shares dropped 7.2% at 10:39 a.m. in New York.
“We do not believe the pivot into the Permian was a surprise, but the size, timing, and move into both flanks in one fell swoop may be a surprise,” KeyBanc Capital Markets Inc. analyst Tim Rezvan wrote in a research note.
Civitas plans to reduce the number of rigs drilling the acquired assets, Chief Executive Officer Christopher Doyle said in an interview, a typical move among shale producers. Civitas will likely cut Hibernia’s rigs to two from three, and reduce Tap Rock’s to two from four, he said.
Read More: US Oil’s M&A Boom Is All About Delaying Peak Shale
The move from Civitas also tests where investors’ appetite stands for multi-basin explorers. Investors have showed a preference for so-called pure-play companies focused on a single region, but Doyle thinks that outlook is evolving, especially given that the Permian is the most productive basin on the continent.
“Depth and quality of inventory with scale really matters for investors,” Doyle said.
The deals will boost Civitas’s production by 60%, or the equivalent of about 100,000 barrels a day. The combined transaction will be funded in part with $2.7 billion of unsecured senior debt. Bank of America Corp. and JPMorgan Chase & Co. are providing Civitas with $3.5 billion of committed financing for the transaction.
(Updates with CEO’s comments in sixth through eighth paragraphs.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.