Civitas Resources Inc., Denver, has agreed to acquire oil producing assets in the Midland and Delaware basins of west Texas and New Mexico. The two separate agreements were signed with affiliates of Hibernia Energy III LLC and Tap Rock Resources LLC, which are respective portfolio companies of NGP Energy Capital Management LLC, for about $4.7 billion.
With the deal, Civitas enters the Permian basin with scale and becomes a more balanced enterprise with an inventory of drilling opportunities in the Permian and DJ basins, the company said in a release June 20.
The combined transactions will add about 68,000 net acres (90% held-by-production) in the Midland and Delaware basins and will add combined proved reserves of about 335 MMboe, as of yearend 2022, Civitas said.
The transactions will increase Civitas’ existing production by 60%, adding some 100,000 boe/d (54% oil) of current production with the acquired assets expected to average about 105,000 boe/d from deal closing through yearend 2023.
Combined, the acquisitions will add about 800 gross locations with some two-thirds having an estimated IRR of more than 40% at $70/bbl WTI and $3.50/MMbtu Henry Hub NYMEX pricing, the operator said. The company’s pro forma oil-weighting is expected to increase to nearly 50%.
To accelerate debt reduction, Civitas amended its share buyback authorization to $500 million through yearend 2024 (previously $1 billion through yearend 2024). The company also plans to sell about $300 million in non-core assets by mid-2024.
Delaware basin
Civitas agreed to purchase a portion of Tap Rock’s Delaware basin assets for $2.45 billion, which includes $1.5 billion in cash and about 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 about 30,000 net acres, primarily in Eddy and Lea counties, New Mexico. First-quarter 2023 average production was about 59,000 boe/d, of which 52% was oil. Civitas will have an inventory of about 350 high-quality locations in the Delaware basin.
The assets include an estimated 295 drillable locations with greater than 40% IRR at $70 oil, Seaport Research Partners said in an investor note June 20. “With 4 rigs currently running we expect that is over 4 years of identified inventory, though we expect the company to operate closer to 1-2 rigs going forward in the Delaware basin,” the analysts said.
Midland basin
Civitas has also agreed to purchase Hibernia’s Midland basin assets for $2.25 billion in cash. The assets include about 38,000 net acres in Upton and Reagan counties, Texas. First-quarter 2023 average production was about 41,000 boe/d, of which 56% was oil. Civitas will have an inventory of about 450 high-quality locations on a contiguous acreage position.
Civitas estimates it has 185 drillable locations with greater than 40% IRR at $70 oil, Seaport Research Partners said. “With 3 rigs currently running, we expect that is over 3 years of identified inventory, though we expect the company to operate closer to a steady state of activity at 1-2 rigs in the Midland,” the analysts continued.
Both transactions are subject to customary terms and conditions and are expected to close in this year’s third quarter, with effective dates of July 1, 2023.
