Civitas Resources Forays Into Permian Basin Through ~$5B Assets Buyout

Civitas Resources Inc CIVI inked two definitive deals to acquire oil-producing assets in the Midland and Delaware Basins of west Texas and New Mexico for a combined price of around $4.7 billion.

The company signed agreements with affiliates of Hibernia Energy III and Tap Rock Resources, both managed by NGP Energy Capital Management.

Civitas plans to fund both deals through cash, unsecured senior debt, common shares, and borrowings under the undrawn credit facility.

The transactions, effective July 1, 2023, are expected to conclude in Q3 2023, upon customary closing conditions.

The acquisition will boost CIVI's inventory of high-return drilling assets in the Permian and DJ basins, adding around 68,000 net acres (90% held-by-production) in the Midland and Delaware basins with combined proved reserves of about 335 MMBoe, as of year-end 2022.

Outlook: The deal is projected to boost the company's existing production by 60%, with the acquired assets expected to average about 105 Mboe/d from close through year-end 2023.

Civitas expects pro forma combined total production of 200 Mboe/d – 220 Mboe/d (Premian Assets: 100 Mboe/d − 110 Mboe/d from Aug-Dec) in 2023 and 270 Mboe/d − 290 Mboe/d in 2024. 

The company projects pro forma combined oil production of 95 Mboe/d – 105 Mboe/d in 2023 and 130 Mboe/d - 140 Mboe/d in 2024.

Combined pro forma capital expenditure is anticipated to be $1.175 billion − $1.385 billion in 2023 and $1.600 billion− $1.800 billion in 2024. 

The acquisition is projected to boost 2024 FCF per share by around 35% and generate around $1.1 billion of pro forma FCF in 2024.

Dividend & Repurchases: Civitas expects pro forma dividends to increase by about 20% in 2024.

To reduce debt, the company modified its share buyback authorization to $500 million through year-end 2024 (vs. $1 billion through year-end 2024 earlier).

It plans to sell around $300 million in non-core assets by mid-2024.

As of March 31, 2023, CIVI's total liquidity was $1.5 billion, comprising $556.1 million of cash plus funds available under its credit facility. 

Price Action: CIVI shares are trading lower by 1.74% at $68.14 premarket on the last check Tuesday.