Diamondback subsidiary Viper Energy announced Tuesday its acquisition of Sitio Royalties in an all-stock deal valued at $4.1 billion, including $1.1 billion of Sitio debt.
Both companies are publicly traded, Denver-based Sitio on the New York Stock Exchange, Midland-based Viper on the Nasdaq. The specific terms of the agreement imply a value of $19.41 per share of Sitio.
Those terms in include an exchange of stock in a new holding company: 0.4855 shares of the new company for each share of Sitio Class A common stock, and 0.4855 shares of Viper Energy Partners, Viper’s operating subsidiary, for each unit of Sitio’s operating subsidiary. Holders of Sitio’s Class C common stock will receive a corresponding about of Viper’s Class B common stock. After closing, Diamondback is expected to own about 41 percent of Viper’s outstanding common stock.
On the financial side, Moelis & Company advising Viper and J.P. Morgan advised Sitio.
Viper’s outside legal counsel is Wachtell, Lipton, Rosen & Katz, while Sitio is advised by Vinson & Elkins. Gibson Dunn & Crutcher counseled Moelis.
The deal, which includes significant Sitio acreage in the Permian Basin, as well acreage in the DJ, Eagle Ford and Williston basins, adds a net 34,300 acres to Diamondback, an estimated $50 million in operating synergies and a $2 per barrel reduction in Viper’s dividend breakeven to less than $20 per barrel WTI.
Specifically, Viper is adding 25,300 net royalty acres in the Permian and about 9,000 net royalty acres in the other basins. About 50 percent of the Permian acreage overlaps with Viper’s gross producing horizontal wells. The deal would give Diamondback 87,300 net royalty acres in the Permian, about 43 percent operated by Diamondback.
“This transaction positions Viper to compete for capital with mid and large cap North American E&Ps; except with higher margins, minimal operating costs, and the lowest dividend breakeven in the space,” said Viper CEO Kaes Van’t Hof in announcing the deal.
The V&E team advising Sitio was led by partners Doug McWilliams (Houston), Benji Barron (Houston) and Scott Rubinsky (Houston) with associate Chase Browndorf (Houston). They were assisted by associates Mimi Nguyen (Houston), Jack Kimmel (Houston), Ronnie Braxton (Houston), Hannah Avery (Houston), and Evan Rodgers (Houston). Also advising were partners Ryan Carney (Houston) and Lina Dimachkieh (Houston) and associates Keleigh Carver (Houston) and Tripp Haskins (Houston); counsel Alex Lewis (Houston), senior associate Nate Richards (Houston) and associate Lauren Perillo (Houston); partner Dario Mendoza (Dallas), senior associate Brian DeShannon (New York) and associates Cassandra Zarate (Houston) and Reagan McGinnis (Houston); partners Hill Wellford (Washington, D.C.) and Kara Kuritz (Washington, D.C.) and senior associate Adam Thomas (Washington, D.C.); partner Dave Wicklund (New York); and Jeff Crough (Dallas).
The Gibson Dunn team advising Moelis was led by Hillary Holmes (Houston) and Andrew Kaplan (New York) alongside counsel Justine Robinson (Houston) and associate Hunter Michielson (Houston).