Sitio Royalties Unveils Pair of Permian Basin Acquisitions Worth Nearly $550 Million

Sitio Royalties Corp. disclosed two acquisitions in the Permian Basin on June 27 worth a combined $547 million that builds on Sitio’s strategy of consolidation of large-scale, high-quality mineral and royalty positions.

“We believe that the mineral and royalty sector is ripe for consolidation and are proud to announce these highly accretive acquisitions soon after completing the Falcon Minerals merger and rebranding the company to Sitio,” Noam Lockshin, chairman of the Sitio board of directors, commented in a company release.

Falcon Minerals completed its merger with Desert Peak Minerals on June 7, creating Sitio Royalties led by Chris Conoscenti, who previously served as CEO of Desert Peak. At the time of the initial announcement of the merger agreement in January, the combined company was expected to have a significant Permian and Eagle Ford footprint and an enterprise value of $1.9 billion.

“These acquisitions are the latest in a series of transactions in excess of 10,000 NRAs since June of 2021, building on our track record of executing value-additive M&A and further cementing our position as the top consolidator in the space.”—Chris Conoscenti, CEO, Sitio Royalties

In a June 27 company release, Sitio said it had completed the acquisition of over 19,700 net royalty acres from Foundation Minerals for approximately $323 million. The company separately entered an agreement to acquire over 12,200 net royalty acres from Momentum Minerals for $224 million.

The acquisition from Foundation, a Midland, Texas-based portfolio company of Quantum Energy Partners, represents Sitio’s fourth transaction in excess of 10,000 NRAs closed or signed since June 2021. Momentum, a Houston-based portfolio company of funds and accounts managed or advised by affiliates of Apollo Global Management, represents the fifth.

“These acquisitions are the latest in a series of transactions in excess of 10,000 NRAs since June of 2021, building on our track record of executing value-additive M&A and further cementing our position as the top consolidator in the space,” commented Conoscenti, who serves as CEO of Sitio.

Both acquisitions are located in the Permian Basin, resulting in a 30% increase in Sitio’s Permian assets. The transactions also boost production as well as the company’s net line of sight inventory wells by more than 30%.

In total, the Foundation and Momentum acquisitions will bring Sitio’s total footprint to 173,700 net royalty acres.

“We are excited to announce these highly accretive acquisitions in the Permian Basin and continued execution of our returns-focused, large-scale mineral and royalty consolidation strategy. We expect our shareholders to significantly benefit from efficiencies due to the increased scale of the company and a substantial increase to our dividend,” Conoscenti added.

According to Sitio, the transactions are accretive to shareholders by approximately 15% on a cash flow per share basis.

Assuming a 65% dividend payout ratio per Sitio’s previously announced capital allocation framework as compared to the company’s second-half 2022 dividends per share had the acquisitions not been consummated, Sitio expects the acquisitions to add approximately 15% to the company’s second-half 2022 dividends per share at current commodity strip pricing.

The Foundation acquisition was funded utilizing borrowings under Sitio’s credit facility and proceeds from a 364-day unsecured bridge loan facility. The Momentum acquisition is expected to be funded utilizing debt financing and close in the third quarter, subject to customary closing conditions.

Pro forma leverage upon closing of both acquisitions is expected to be approximately 1.5x. Sitio said it expects pro forma leverage to return to 1.0x or less by year-end 2023 based on current strip pricing for oil and gas.