Civitas Enters Permian in $4.7B in Deals for Tap Rock, Hibernia

Editor's note: This breaking news article has been updated with additional details on Civitas' deal financing. Check back for updates.

Civitas Resources has signed two definitive agreements to enter the Permian’s Midland and Delaware basins through the acquisition of private E&Ps Hibernia Energy III LLC and Tap Rock Resources LLC for cash and stock totaling $4.7 billion, according to a June 20 press release.

Both companies are backed by NGP Energy Capital Management LLC and the transactions come as Permian Basin pure players scramble for inventory. Civitas’ production base is currently anchored by the Denver-Julesburg Basin (D-J Basin).

The Permian entry adds immediate scale for Civitas gaining 68,000 net acres, 90% of which are HBP, and proved reserves of approximates 335 MMboe as of year-end 2022.

The deals increase Civitas’s existing production base by 100,000 boe/d (54%) oil, an increase of 60%. Civitas said it expects production to average 105,000 boe/d from the time it closes the deal through the end of 2023.

In the Delaware, Civitas said it agreed to purchase a portion of Tap Rock's Delaware Basin assets for $2.45 billion, including $1.5 billion in cash and approximately 13.5 million shares of Civitas common stock valued at approximately $950 million. Tap Rock will retain its ownership of the Olympus development area.

The assets include approximately 30,000 net acres, primarily located in Eddy and Lea counties, New Mexico, in what is considered to be core Delaware acreage. In the first quarter, Tap Rock production averaged approximately 59,000 boe/d, 52% oil. Civitas also acquires an inventory of approximately 350 drilling locations at a time when.

In the Midland Basin, Civitas agreed to purchase Hibernia's assets for $2.25 billion in cash, subject to customary purchase price adjustments. The assets include approximately 38,000 net acres in Upton and Reagan counties, Texas. Civitas described the area as an “active and well delineated area in the Midland Basin.” First-quarter 2023 production averaged 41,000 boe/d, 56% oil. Civitas will add approximately 450 locations on a contiguous acreage position in the Midland Basin.

Hibernia and Tap Rock are both portfolio companies managed by NGP and, according to Civitas, will transform the company into a “stronger, more balanced and sustainable enterprise” with two production centers in the Permian Basin and the Denver-Julesburg Basin (D-J Basin).

Both transactions are expected to close in third-quarter 2023 with effective dates of July 1, 2023.

"These accretive and transformative transactions will immediately create a stronger, more balanced and sustainable Civitas," said Chris Doyle, Civitas president and CEO. "By acquiring attractively priced, scaled assets in the heart of the Permian Basin, we advance our strategic pillars through increased free cash flow and enhanced shareholder returns. We will soon have nearly a decade of price-resilient, high-return drilling inventory. Our strong capital structure allowed us to capture these transformational assets, and, importantly, behind the strength of the pro forma business, we have a clear path to reduce leverage and maintain long-term balance sheet strength."

Civitas said the deals will combine to add 800 gross locations with approximately two-thirds having estimated IRRs of more than 40% at $70/bbl WTI and $3.50/MMBtu Henry Hub Nymex pricing. The company's pro forma oil-weighting is expected to increase to nearly 50%.

The acquisitions are attractively priced at 3x 2024 estimated adjusted EBITDAX, in-line with recent Permian transactions. The transactions are expected to deliver an estimated 35% uplift to 2024 free cash flow (FCF) per share.

Civitas expects to generate approximately $1.1 billion of pro forma FCF in 2024 at $70/Bbl WTI and $3.50/MMBtu Henry Hub Nymex pricing

In a subsequent press release, Civitas announced on June 20 two private placements for senior unsecured debt totaling $2.7 billion to help pay for the actuations. The remainder of the transaction will be paid through the company’s:

• Cash on hand, $400 million;
• Credit facility, $650 million; and
• Equity, $950 million.

The debt represents about 47% of the Permian acquisition purchase price.

Bank of America and JP Morgan are also providing Civitas with $3.5 billion of committed financing for the transaction.

BofA Securities and Guggenheim Securities LLC are serving as financial advisers, Kirkland & Ellis is serving as legal advisor and DrivePath Advisors is serving as communication adviser for Civitas. Goldman Sachs also provided strategic advice to the Company.

JP Morgan and Baker Botts LLP advised Hibernia. Jefferies and Vinson & Elkins LLP advised Tap Rock.