Civitas Resources (CIVI) Update - July 1

[dan_s]

Notes below are from our friends at Mercer Capital with my comments in blue
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Civitas Resources Sitting on One Decade’s Worth of Permian Inventory

On June 20, 2023, Civitas Resources announced the completion of two separate asset transactions: the purchase of oil-producing assets in the Midland and Delaware Basins from Tap Rock Resources and Hibernia Resources III, both of which are portfolio companies of funds managed by NGP Energy Capital Management. The combined transaction value of the two deals was approximately $4.7 billion ($2.45 billion for the Tap Rock Resources assets and $2.25 billion for the Hibernia Resources assets). Transaction highlights include:

Permian Basin entry with immediate scale: The combined transactions will add approximately 68,000 net acres (90% held by production) in the Midland and Delaware basins. The transactions will increase Civitas’ existing production by 60%, adding approximately 100 MBoe/d (54% oil) of current production, with the acquired assets expected to average approximately 105 Mboe/d from close through year-end 2023.

Adds premium, low breakeven oil inventory, enhances oil-weighting and margins: Combined, the acquisitions will add about 800 gross locations, with approximately two-thirds having an estimated IRR of more than 40% at $70/Bbl WTI and $3.50/MMBtu Henry Hub NYMEX pricing. < When I started looking at CIVI for our High Yield Income Portfolio my only concern was their lack of high-quality drilling inventory. The Permian Basin acquisition solves that problem. This much "running room" insures that the Company will be paying nice dividends for many years to come.

Attractively priced, immediately accretive to key financial metrics: The acquisitions are attractively priced at 3.0x 2024 estimated Adjusted EBITDAX (after taking into account the consummation of the transactions). The transactions are expected to deliver an estimated 35% uplift to 2024 free cash flow per share. Civitas expects to generate approximately $1.1 billion of pro forma free cash flow in 2024 at $70/Bbl WTI and $3.50/MMBtu Henry Hub NYMEX pricing.

Balanced portfolio maximizes capital allocation flexibility: Post close, Civitas will have a more balanced asset portfolio with basin and commodity diversity. The transactions will provide flexibility in future capital allocation and optimize returns.

Civitas President & CEO Chris Doyle commented,

“These accretive and transformative transactions will immediately create a stronger, more balanced and sustainable Civitas. By acquiring attractively priced, scaled assets in the heart of the Permian Basin, we advance our strategic pillars through increased free cash flow and enhanced shareholder returns. We will soon have nearly a decade of price-resilient, high-return drilling inventory. Our strong capital structure allowed us to capture these transformational assets, and, importantly, behind the strength of the pro forma business, we have a clear path to reduce leverage and maintain long-term balance sheet strength.”

Civitas plans to fund the two transactions by issuing approximately $2.7 billion of unsecured senior debt, 13.5 million shares of Civitas common stock valued at $950 million, $600 million in borrowings under the Company’s undrawn credit facility, and $400 million of cash-on-hand.