Tulsa-based Vital Energy Inc. announced after the markets closed Wednesday three acquisitions for $1.165 billion that promise to add scale in the Permian Basin, increase free cash flow, enhance capital efficiency and reduce leverage.
The agreements were signed with affiliates of Henry Energy and Henry Resources, Tall City Property Holdings III and Maple Energy Holdings. The transactions are all expected to close in the fourth quarter.
Houlihan Lokey is lead financial advisor on the combined transactions. Mizuho and Truist Securities are co-advisors on Henry and Maple and Key Bank is assisting Tall City.
The deals involved lawyers from the Texas offices of six different firms.
Akin, Latham & Watkins and Vinson & Elkins are Vital’s legal advisors.
The Latham team advising Vital on the Henry and Maple transactions was led by Houston corporate partners Stephen Szalkowski and John Greer with associates Cesar Leyva, Robert Cunningham, Justin Reinking and Jordan Armstrong.
Counsel was also provided on tax matters by Latham partners Jim Cole and Tim Fenn in Houston with associate Dominick Constantino; on antitrust by Washington, D.C., partner Jason Cruise and counsel Peter Todaro; and on executive compensation, employment and benefits by Washington, D.C., partner Adam Kestenbaum.
Guggenheim Securities and Citigroup advised Tall City, which used Kirkland & Ellis. Jackson Walker advised Henry and Vinson & Elkins advised Maple.
The Kirkland group advising Tall City was led by corporate partners Adam Larson, Chris Heasley, Alia Heintz and Kate Willson and associates Jarrod Gamble and Brandon Ricaurte; capital markets partners Julian Seiguer and Ieuan List and associate Samantha Siegler; and tax partners Mark Dundon and Ryan Phelps.
The Vinson & Elkins team advising Vital was led by partner Bryan Loocke and counsel Joclynn Marsh, with assistance from senior associate Alex Turner and associates Kene Obi and Brad Oster. Other key team members included partner Thomas Zentner and associates Walt Baker and John Frey (corporate); partner Todd Way and associates Jeff Slusher and Katie Dillard (tax); partner Matt Dobbins and associate Kelly Rondinelli (environmental); partner Becky Baker (employment/labor); partner David D’Alessandro, counsel Missy Spohn and associates Andrew Cox and Cassandra Zarate (executive compensation/benefits); counsel Evan Miller and associate Adam Thomas (HSR); and partner James Longhofer and associate Joe Higdon (finance).
The Vinson & Elkins team advising Maple Energy Holdings was led by partner John Grand and counsel Elena Sauber, with assistance from partner Stancell Haigwood, senior associate Patrick Whelan and associates Peter Faour, Jessica Rosenwasser and Elisie Lee. Other key team members included partner David Peck and associate Adam Bateman (tax); partner Matt Dobbins and associates Kelly Rondinelli, Alyssa Sieja and Ryan Vanderlip (environmental); partner James Longhofer and senior associate Joe Higdon (finance); partner Steve Abramowitz (restructuring); partner Darren Tucker and senior associate Ryan Will (antitrust); and partner Sarah Mitchell (insurance).
The Jackson Walker team assisting Henry included Joe Flack, according to a SEC filing.
Baker Botts is advising the underwriters on the equity and debt capital markets financings. BofA Securities, Citigroup and Wells Fargo Securities are book-running managers for the common stock offering while Mizuho and Truist Securities are joint book-running managers. Wells Fargo Securities, BofA Securities, Mizuho and Truist Securities are book-running managers for the notes offering.
Mark Denny is general counsel of Vital.
Jason Pigott, Vital’s president and CEO, said in a press release that the transactions fit with its strategy of creating value through disciplined acquisitions.
“We have demonstrated our ability to effectively consolidate Permian assets and identify sustainable synergies to lower costs, improve margins and enhance free cash flow.,” he said. “These acquisitions will significantly strengthen our free cash flow outlook and enable us to rapidly delever our balance sheet.”
Specifically, Vital plans to fund the transactions by issuing about 8.61 million shares of its common stock, 4.54 million shares of perpetual mandatorily convertible preferred securities, $285 million in borrowings under its senior secured facility and $100 million of estimated purchase price adjustments.
In the past the company has utilized a balance of equity and debt to finance acquisitions to strengthen the business. Year-to-date, Vital Energy has executed $1.7 billion of acquisitions (including this one), which have used half equity and half debt.
Concurrent with closing, Vital’s credit facility borrowing base and elected commitment will increase to $1.5 billion and $1.25 billion from $1.3 billion and $1 billion, respectively. The company said it will have access to the full $1.5 billion borrowing base through a committed $250 million term loan facility.
Deal by deal, Vital agreed to purchase almost all of Henry’s Midland and Delaware basin assets in an all-equity transaction consisting of 3.72 million common shares and 4.54 million shares of perpetual mandatorily convertible preferred securities; all of Tall City’s Delaware Basin assets for $285 million in cash and 1.58 million common shares; and all of Maple’s Delaware Basin assets in an all-equity transaction consisting of 3.31 million common shares.
Vital said it expects to realize operational synergies associated with a larger, consolidated Delaware position and the ability to optimize activity levels between the Midland and Delaware basins. The company expects to invest $100 million to $125 million in the newly acquired assets next year, representing less than half of the previous operators’ activity levels.
Vital has hedged 75 percent of expected 2024 pro forma oil volumes at an average price of $75 per barrel (WTI).