Analysts say Civitas Resources’ Oct. 4 acquisition of Vencer Energy LLC delivers greater Permian Basin inventory depth at attractive terms.

Denver-based Civitas agreed to pay approximately $2.1 billion in cash and stock to acquire assets from Houston-based Vencer, a Midland Basin E&P backed by Swiss energy trader, Vitol.

In the current price environment, the $2.11 billion purchase price is attractive at $33,760 per flowing boe/d of production—a more than 25% discount compared to Civitas’ previous acquisitions in the Permian, said Gabriele Sorbara, managing director of equity research at Siebert Williams Shank & Co.

Civitas’ latest acquisition comes months after the company first entered the Permian Basin with acquisitions of two private E&Ps—Hibernia Energy III in the Midland and Tap Rock Resources in the Delaware Basin.

Before expanding into the Permian this year, Civitas’ production base was anchored by the Denver-Julesburg Basin (D-J Basin). In the course of just four months, the company is now guiding for Permian production to account for 50% of its total output.

“We anticipate potential upcoming non-core D-J (and potentially Permian) sales to help push the company into a more prominent majority Permian position, along with potential incremental acquisitions,” analysts at Truist Securities wrote in an Oct. 4 research report; Civitas plans to sell around $300 million in non-core D-J Basin assets by mid-2024.

The Vencer deal will add around 44,000 net acres and about 62,000 boe/d (50% oil) in the Midland Basin, Civitas announced Oct. 4. After the deal closes, Civitas’ total Permian production will be approximately 170,000 boe/d.

Civitas Acreage Map
Civitas is adding around 44,000 net acres and about 62,000 boe/d (50% oil) in the Midland Basin by acquiring Vencer Energy (Source: Civitas investor presentation)

The deal will also extend Civitas’ drilling inventory with an incremental 400 gross development locations, primarily targeting the Spraberry and Wolfcamp formations. Civitas is paying about $1.1 million per net undeveloped well, Sorbara said.

The Vencer deal is priced at around 2.8x 2024 adjusted EBITDAX at $80/bbl WTI and $3.50/MMBtu Henry Hub prices, Civitas said. The relatively low purchase price compares favorably to the company’s previous Permian deals, according to analysts at Jeffries.

“We believe [Civitas] acquired one of the few Permian privates remaining that is accretive to asset quality,” Jeffries Equity Analyst, Lloyd Byrne, wrote in a research report.

After closing the deal, Civitas anticipates generating approximately $1.8 billion in 2024 free cash flow, based on $80/bbl WTI and $3.50/MMBtu Henry Hub prices.

The Vencer acquisition is expected to close in January 2024.

RELATED: Civitas Bolts on Midland Assets for $2.1 Billion

Parachuting into the Permian

As Civitas looked at deals to diversify its portfolio, the company knew it had to jump into a new basin with meaningful scale, Civitas CFO Marianella Foschi said at Hart Energy’s Energy Capital Conference 2023 in Dallas on Oct. 2.

On their own, neither of the deals with Hibernia or Tap Rock, both backed by private equity firm NGP Energy Capital Management, would have delivered Civitas the Permian runway the company wanted.

But bought together, the deals added meaningful scale in both the Midland and Delaware basins.

“We believe we now have a scale position in the top three basins in the Lower 48, and that was important to us,” Foschi said.

Marianella Foschi
Marianella Foschi, CFO at Civitas Resources, at Hart Energy’s Energy Capital Conference 2023 in Dallas (Source: Hart Energy)

Civitas looked at a lot of deals during 2022—probably about $30 billion across 12 different transactions—but didn’t go through with any of them, she said. Oil and gas prices were high, and sellers were asking a lot for their assets.

“We spent all of 2022 with negative net debt, so we were very well-positioned to compete in theory,” Foschi said. “But the issue at the time was valuations.”

Commodity prices normalized through the beginning of 2023, which opened up opportunities for Civitas to close on M&A at more attractive terms.

Along with Civitas’ deals, the Permian has seen a flurry of M&A activity this year as public E&Ps scramble for inventory depth and private equity monetize their upstream portfolios.

E&Ps including Permian Resources, Ovintiv, Callon Petroleum, Matador Resources, Vital Energy and Diamondback Energy have pumped billions of dollars into Permian Basin acquisitions.

RELATED: Analyst: Civitas’ $4.7 Billion Permian Deals Extend Inventory Outside D-J

Vitol eyes more M&A

With financial backing from Vitol, Vencer was established in 2020. The company acquired its foundational asset base in the Midland Basin from Hunt Oil the next year.

Vencer’s production has increased to an average 60,000 boe/d from about 40,000 boe/d since that time, Vitol said in a statement.

Vitol remains enthusiastic about deploying more capital into the U.S. upstream sector. The company’s other Permian E&P platform, Austin-based VTX Energy Partners, has consolidated a sizable acreage position in the southern Delaware Basin.

VTX Energy continues to look at acquisition opportunities across the southern Delaware and in different basins around the Lower 48, CFO Graham Bayley said during Hart Energy’s A&D Strategies & Opportunities Conference 2023 on Oct. 3.

Vitol also said it is considering adding assets to its portfolio through a new platform.


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