Brigham Minerals Inc. and Sitio Royalties Corp. announced on Sept. 6 their intent to combine in an all-stock, at-market merger in a joint press release from the two companies.
Valued at approximately $4.8 billion, the merger will bring together two of the largest public companies in the oil and gas sector and the mineral and royalty sector with complimentary assets in oil-focused regions, including Brigham's recent Permian acquisition of 3,900 net royalty acres from Avant Natural Resources LLC.
Additionally, the company expects to benefit from a step-change in greater scale, enhanced margins and increased access to capital, leading to accelerated consolidation potential, attractive returns and long-term value for stakeholders.
The merged company will continue operating under the Sitio Royalties Corp. name, with Sitio's current management team heading up the leadership team.
The transaction is expected to close in first-quarter 2023, subject to customary closing conditions.
"We believe the merger is the logical next step in the continued evolution of the minerals space and creates an entity of scale with ever improving liquidity and float, as well as a streamlined cost structure that further reinforces the scalability of our industry," Brigham CEO Rob Roosa commented in the release.
The combined company will consist of a total of 259,510 net royalty acres, as well as pro forma net production of 32.8 Mboe/d in second-quarter 2022 and 50.3 net line-of-sight wells operated by a diverse pool of E&P companies as of June 30.
Through the merger, the company anticipates generating approximately $15 million in annual operational cash cost synergies while reducing Sitio’s second-quarter 2022 pro forma cash G&A per boe to approximately $1.72/boe (19%) for the combined company.
"Our merger with Sitio creates the industry leading powerhouse in the minerals space with over 30% coverage in the Permian Basin, approximately 100 rigs running across all of our operating basins and greater than 50 activity wells to continue to drive production and cash flow growth," Roosa continued.
With a strong balance sheet, including pro forma second-quarter 2022 leverage of approximately 1.0x, the merger is expected to increase Sitio's public float from approximately $320 million to approximately $1.9 billion by 5.8x.
Brigham and Sitio shareholders will receive approximately 46% and 54%, respectively, of the combined company on a fully diluted basis. Balanced capital allocation framework will prioritize return of capital to shareholders "at a minimum 65% payout ratio, while using retained cash to protect the balance sheet and opportunistically fund cash acquisitions," the companies stated.
“We believe that achieving material scale in this industry is critical to creating sustained value for our stakeholders and distinguishing Sitio from others, which is why we have been so focused on employing a differentiated, large-scale consolidation strategy," Sitio CEO Chris Conoscenti added.
"We will be able to pursue opportunities that few others can because of the size of our business, strength of our balance sheet, optimized cost structure and access to capital,” he continued.
The combined board of directors will contain five Sitio-nominated directors and four Brigham-nominated directors, with Sitio's current board chairman Noam Lockshin to serve as chairman of the new board.
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