Civitas Resources’ Acquisition of Two Permian Assets At A Healthy Multiple Has Important Read Through for Vital Energy
Permian basin consolidation continues at a rapid pace. Only a few days after Earthstone Energy (NYSE: ESTE) announced its acquisition of Novo Oil & Gas Holdings LLC, Civitas Resources announced today that it will be simultaneously acquiring Midland Basin assets from Hibernia Energy III, LLC and Delaware Basin assets from Tap Rock Resources. Both are owned by private equity firm NGP Energy Capital Management, LLC.
The total consideration to be paid to NGP, as per Civitas, will be $4.7B including both cash and stock. A breakdown of the purchase price can be seen below:
Civitas Acquisition and Implications
Civitas discloses it is buying 100,000 boe/d of existing production (54% oil) from NGP. Civitas also claims it will be getting significant combined inventory from these assets, including 68,000 net acres, 800 gross drilling locations and 335MM Boe of proved reserves. These metrics imply a deal price of $47,000/boe/d:
This is a healthy valuation compared to recent deals in the Permian, particularly the recent Earthstone deal which transacted at nearly half the price ($26,316/boe/d). We estimated that Earthstone’s modestly priced acquisition still implied more than 80% upside to Vital share’s pro-forma it’s Forge acquisition, and therefore, it will come as no surprise that this higher valuation implies significant upside for Vital Energy (NYSE: VTLE). More on this below.
Implications for Vital Energy
Civitas claims to be buying these assets for 3.0x EV/EBITDA, which is on the higher end of transaction multiples we’ve seen in the Permian recently and perpetuates the trend of rising valuations for oil and gas acquisitions. Importantly, this transaction multiple is significantly above the 2x EV/EBITDA we estimate Vital is trading at today. It is remarkable to see buyers disclosing transaction multiples for private assets above that of publicly traded comparables, which may galvanize further consolidation in the space as valuations rise.
We estimate that this transaction’s valuation implies more than 260% upside for Vital Energy, as can be seen below:
While these Permian assets transacted at a healthy multiple, it is worth noting that this is not the highest deal price we’ve seen recently. For instance, Ovintiv disclosed having bought Encap’s Permian assets for a price of $57,000/boe/d, which we estimate was closer to $65,000/boe/d after making certain transaction adjustments. Transaction valuations for recent Permian acquisitions can be seen below:
It is worth considering what other, more richly priced transactions imply for Vital—particularly as oil prices rise. And importantly, the upside to Vital’s shares in a similarly priced transaction is extremely compelling and suggests that this opportunity to buy a heavily discounted, nearby producer with similar assets may not be around for long.
Important Disclaimer: Opinions expressed herein by the author, Josh Young, are not investment recommendations and are not meant to be relied upon in investment decisions. The author is not acting in an investment adviser capacity. This is not an investment research report. The author's opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including a detailed review of the companies SEC filings, and consult a qualified investment adviser. The information upon which this material is based was obtained from sources believed to be reliable but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication and are subject to change without notice. The author and funds the author advises own shares in Vital Energy (NYSE: VTLE) and may buy or sell shares without any further notice.
Only in a market composed of AI addled, BTFD tech addicted, price insensitive passive strategy algorithms can such price non discovery occur...temporarily?