After a year of major expansion for Sitio Royalties Corp., including a $4.8 billion merger, the mineral and royalty company is seeking more growth this year.

Denver-based Sitio started 2022 as a private company, called Desert Peak, which owned approximately 106,000 net royalty acres in the Permian Basin.

Following a string of acquisitions and a reverse merger with Falcon Minerals last summer, Sitio has emerged as one of the largest public oil and gas mineral and royalty players in the U.S.

Sitio CEO Seeks More Mineral, Royalty M&A: ‘We’re Still Too Small’
Sitio Royalties has amassed a large position in the Permian’s Midland and Delaware basins. (Source: Sitio March investor presentation)

Sitio got a major boost through its $4.8 billion merger with Brigham Minerals Inc. in December, which expanded the company’s footprint in the Permian’s Delaware and Midland basins, the Oklahoma SCOOP and STACK plays, the Denver-Julesburg Basin (D-J Basin) and the Williston Basin.

Sitio’s acquisitions and expansion last year led the company to start 2023 with 260,000 net royalty acres across seven key production basins.

Despite a year of massive growth in 2022, Sitio still wants to get bigger, CEO Chris Conoscenti said on April 10 during the World Oilman’s Mineral & Royalty Conference in Houston.

“The investors are pushing us to get more scale,” Conoscenti said. “We’re still too small to matter to a lot of the investors that we’re targeting.”

RELATED: Sitio, Brigham Close $4.8 Billion Merger

Sitio hunting for scale

Sitio already has a sizable footprint in the mighty Permian — about 70% of the company’s assets are located in the basin.

But the Permian remains Sitio’s primary target area for accretive acquisitions. Sitio has identified tens of thousands of unique mineral owners spread across the Delaware and Midland basins with net royalty acreage positions able to be acquired.

Sitio CEO Seeks More Mineral, Royalty M&A: ‘We’re Still Too Small’
Sitio’s primary target area for mineral and royalty acquisitions is the Permian Basin. (Source: Sitio March investor presentation)

As Sitio explores for its next large-scale acquisition, the company will consider deals in most production basins, he said. But, finding attractive M&A opportunities in more mature oil and gas basins has been a challenge for the company.

“I candidly don’t care where the next acquisition geographically is – if it meets our return thresholds,” Conoscenti said. “That said, we’re having a real hard time meeting those return thresholds in basins that are, at best, flatlining — or, at worst, in decline.”

Ultimately, Sitio believes there will be fewer opportunities for large-scale acquisitions this year compared to 2022, the company said in its fourth-quarter 2022 earnings call.

Sitio has made several offers to acquire more mineral assets so far this year, Conoscenti said. But the company hasn’t executed any deals because the bid-ask spread was too wide.

“If attractive consolidation opportunities do not materialize, we will continue to focus on strengthening the balance sheet by paying down our pre-payable debt and building liquidity for when market conditions normalize,” he said on the call.

RELATED: Kimbell Royalty Partners Boosts Midland Basin Position with $143 Million Deal

Sitio CEO Seeks More Mineral, Royalty M&A: ‘We’re Still Too Small’
Sitio Royalties has assets in seven major production basins in the U.S. Lower 48. (Source: Sitio March investor presentation)

M&A has record year

Mineral and royalty deals had a banner year in 2022 as transactions reached $6.7 billion, according to data from RBC Richardson Barr.

That’s nearly double the previous high watermark of $3.5 billion in minerals and royalties deals consummated in 2018, RBC said. 

The surge in dealmaking followed two rather paltry years in A&D in 2020 ($1.5 billion) and 2021 ($1.1 billion), said Rusty Shepherd, managing director at RBC Richardson Barr, who also spoke at the conference.