Publicly traded Denver oil explorer Civitas Resources announced Tuesday it plans on entering the Permian Basin by agreeing to acquire producing assets in the Midland and Delaware Basins of West Texas and New Mexico from Hibernia Energy III and Tap Rock Resources for $4.7 billion.
Both targets are backed by NGP Energy Capital Management. The purchases are expected to close in the third quarter.
According to Seaport Research Partners analyst Nick Pope, Civitas has spoken about its interest in diversifying its asset base in recent quarters, and its low-leverage ahead of the deal (near zero net debt as of the second quarter) allows it flexibility on transactions.
“We believe the acquisitions are attractive for the company, as scale and size is a factor in E&P valuation, and the DJ-basin has become difficult to expand within,” he said, noting the stock remains a “compelling value.”
Civitas said the transactions will fundamentally transform the company into a stronger, more balanced, and sustainable enterprise with a deep inventory of high-return drilling opportunities in the heart of the Permian and DJ basins.
“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,” Civitas president and CEO Chris Doyle said in the statement. “We will soon have nearly a decade of price-resilient, high-return drilling inventory.”
Doyle added that the company’s strong capital structure allowed it to capture these assets, and, importantly, “We have a clear path to reduce leverage and maintain long-term balance sheet strength.”
Civitas used BofA Securities and Guggenheim Securities as financial advisors with Goldman Sachs providing strategic advice. Jonathan Sloan led the JP Morgan team that advised Hibernia. Greg Chitty for Jefferies assisted Tap Rock.
Civitas general counsel Travis Counts tapped Kirkland & Ellis as outside counsel. On the Hibernia transaction, the team was led by corporate and real assets partners Thomas Laughlin, Lindsey Jaquillard, Josh Teahen and Alia Heintz and associates Jack Chadderdon, Matt Gibson and Braxton Smith.
Others in the group were capital markets partners Julian Seiguer, Bryan Flannery and Anthony Sanderson; debt finance partners Will Bos and Shan Khan; tax partners Mark Dundon and Ryan Phelps with support from corporate partner Ryan Phelps; and real assets partner Anthony Speier.
Others were Seiguer, Flannery and Sanderson; Bos and Khan; Dundon and Phelps with support from Bacon as well as corporate partner Josh Teahen; and Jaquillard and Speier.
NGP was represented in-house by general counsel Jeff Zlotky and assistant general counsel Christina Sanders.
Hibernia used Baker Botts and Tap Rock tapped Vinson & Elkins. The Baker Botts team was led by partners Larry Hall and Jon Platt. Tap Rock was represented by its executive VP of land & legal Clayton Sporich and general counsel Dana Arnold, along with Bryan Loocke from V&E.
“Both Larry Hall and Bryan Loocke are great lawyers with great teams,” Zlotky said in an email. “Larry has been working with the Hibernia team for decades and has always done great work for them. Tap has worked with Loocke and V&E on several major deals in the life of that company and knew their assets and company the best. Both firms did a great job for their respective clients.”
The rest of Baker Botts’ team included corporate associates Brittany Dudley, Derek Gabriel and Rusty Shellhorn, tax partners Stephen Marcus and Matthew Larsen and senior associate Jordan Hahn, executive compensation and benefits partner Jason Loden and finance partner Luke Weedon and associate Delaram Peimani.
The rest of V&E’s team included corporate partners Jackson O’Maley, Doug McWilliams and Matt Strock and counsel Elena Sauber with assistance from senior associate Jordan Fossee and associates John Larbalestier, Michelle Yang, Ben Zeter, Jake Lubenow, Walt Baker, Kelli Westmoreland and Darren Fox.
Others in the group includes partner James Longhofer and associate Frank George (finance); partners John Lynch and Todd Way and associates Dan Henderson and Adam Bateman (tax); partner Becky Baker and associate Peter Goetschel (employment/labor); partner David D’Alessandro and associate Maddison Riddick (executive compensation/benefits); partner Matt Dobbins and associate Kelly Rondinelli (environmental); and partner Hill Wellford and counsel Evan Miller (antitrust).
Specifically, Civitas agreed to purchase a portion of Tap Rock’s Delaware Basin assets for $2.45 billion, including $1.5 billion in cash and 13.5 million shares of Civitas common stock valued at $950 million (Tap Rock will keep its ownership of the Olympus development area). Civitas will pick up Hibernia’s Midland Basin assets for $2.25 billion in cash.
Civitas plans to fund the two transactions through $2.7 billion of unsecured senior debt, the shares of stock worth $950 million, $600 million in borrowings under its undrawn credit facility and $400 million of cash-on-hand. Bank of America and JP Morgan are providing Civitas with $3.5 billion of committed financing for the transaction.
Two months ago, Reuters reported, citing unnamed sources, that NGP was considering a sale of the two companies in the Permian with hoped-for proceeds of $7 billion. Yesterday the news service said Civitas was near a deal to buy the assets for $5 billion.