SM Energy, Civitas set $1-billion post-merger divestiture target

The leaders of SM Energy Co. and Civitas Resources Inc. plan to sell at least $1 billion worth of assets in the year after joining forces.

Following up on the merger announcement from earlier this month—under which SM Energy will pay about $2.7 billion in stock for Civitas to create a company with operations in four US basins—executives also added details about where they expect to generate cost savings by combining the two Denver-based companies. 

In setting the $1-billion divestiture target, Herb Vogel, SM Energy’s chief executive officer, Beth McDonald—now president and chief operating officer of SM and tabbed to be the combined company’s leader come spring—and others pointed to a recent “robust” market for oil-and-gas deals.

Among the transactions they cite as benchmarks are ConocoPhillips’ $1.3-billion sale of assets in the Anadarko basin, the $2.3-billion sale by Canada’s Baytex of its US foothold in the Eagle Ford, and Civitas’ own $435 million divestiture of Denver-Julesburg basin assets its leaders considered non-core.

Based on the valuations of those deals, the $1 billion being eyed by the SM-Civitas team suggests the company will look to sell about 30,000 boe/d of production. The combined company’s output in the third quarter would have been 550,000 boe/d.

On the synergies front, executives broke down their previously announced target of $200-$300 million annually into the following buckets:

• Drilling and completion as well as operational: $100-150 million, which amounts to about 2.5% of the companies’ combined spending.
• Administrative: $70-95 million from streamlining corporate teams and integrating offices and technology systems.
• Cost of capital: $30-55 million from paying down and/or refinancing debt.

Set to join McDonald in the C-suite once the deal is completed, which is expected early next year, are the following SM veterans:

• Wade Pursell, SM’s chief financial officer since September 2008.
• Blake McKenna, who today oversees SM’s Texas operations and will become the joint company’s chief operating officer when McDonald ascends to chief executive. 
• James Lebeck, SM’s executive vice-president of corporate development and general counsel, who will keep those roles.