Sitio Royalties Corp. and Brigham Minerals Inc. announced Sept. 6 that they would combine in an all-stock merger valued at $4.8 billion.
Under the terms of the agreement, Brigham shareholders will receive a fixed exchange ratio of 1.133 shares of common stock in the combined company for each share of Brigham common stock owned on the closing date and Sitio’s shareholders will receive one share of common stock in the combined company for each share of Sitio common stock.
Sitio shareholders will end up with 54 percent of the combined company and Brigham’s will get 46 percent on a fully diluted basis. The board will consist of nine directors, including five nominated by Sitio and four by Brigham.
According to the release, the combination brings together two of the largest public companies in the oil and gas mineral and royalty sector with complementary assets in the Permian Basin and other oil-focused regions. The companies claim the merger will create an industry leader with a proven track record of consolidating oil and gas mineral and royalty interests operated by exploration and production companies.
The deal is expected to close in the first quarter of next year, when the merged company will take on Sitio’s name.
Noam Lockshin, a partner at Kimmeridge and chairman of Sitio’s board, will be chair of the combined company while Chris Conoscenti will be CEO. Other Sitio backers include Blackstone and Oaktree.
Texas lawyers from Vinson & Elkins advised their longtime client Brigham Minerals led by partners Doug McWilliams and Lande Spottswood and associate Jordan Fossee with assistance from associates Layton Suchma, Jimmy Chalk, Houston Morgan, Delery Perret, Michelle Yang, Terrence Ogren and Emily Kercheville.
Also advising from V&E were partners Jason McIntosh and David Peck, counsel Allyson Seger, senior associate Curt Wimberly and associate Sarah McIntosh (tax); partner David D’Alessandro, counsel Dario Mendoza and associate Maddison Riddick (executive compensation/benefits); partner Thomas Zentner (corporate); partner Matt Dobbins and associate Kelly Rondinelli (environmental); and partner Bryan Loocke (energy transactions/projects).
Goldman Sachs & Co. offered financial advice to Brigham Minerals, including managing directors Nameer Siddiqui and Mirko Gumpel in Houston.
Sitio used Credit Suisse Securities as financial advisor and Davis Polk & Wardwell as legal advisor.
According to Bloomberg, which first reported a potential merger between the two on Sept. 5, Brigham’s shares have climbed 39 percent this year, giving the company a market value of about $1.78 billion. Sitio has a market value of $2.1 billion after its shares gained 29 percent this year, the news agency said.
Other highlights of the merger include the ability to benefit from a step-change in greater scale, enhanced margins and increased access to capital, leading to accelerated consolidation potential, attractive returns and long-term value for stakeholders.
The companies expect the transaction to generate about $15 million of annual operational cash cost synergies and to reduce Sitio’s second quarter 2022 pro forma cash G&A per barrel of oil equivalent by 19 percent to around $1.72 per Boe for the combined company.
The merger is anticipated to increase Sitio’s public float by 5.8 times, from $320 million to $1.9 billion based on Sitio’s Class A share closing price as of Sept. 2.
The companies said that they will prioritize return of capital to shareholders at a minimum 65 percent payout ratio while using retained cash to protect the balance sheet and opportunistically fund cash acquisitions.
Robert (“Rob”) Roosa, CEO of Brigham, said in the release that the merger creates the industry-leading powerhouse in the minerals space with 30 percent coverage in the Permian Basin, 100 rigs running across all of its operating basins and 50 active wells to continue to drive production and cash flow growth.
“We believe the merger is the logical next step in the continued evolution of the minerals space and creates an entity of scale with ever improving liquidity and float as well as a streamlined cost structure that further reinforces the scalability of our industry,” he said.