Highly accretive acquisitions to balance
portfolio, create immediate scale, and enhance capital allocation
flexibility
Civitas Resources (NYSE: CIVI) (“CIVI” or the “Company”) today
announced the signing of two definitive agreements to acquire oil
producing assets in the Midland and Delaware Basins of west Texas
and New Mexico. The agreements were signed with affiliates of
Hibernia Energy III, LLC (“Hibernia”) and Tap Rock Resources, LLC
(“Tap Rock”), which are respective portfolio companies of funds
managed by NGP Energy Capital Management, L.L.C. (“NGP”), for total
consideration of approximately $4.7 billion, subject to customary
purchase price adjustments. The transactions will fundamentally
transform Civitas 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. Both
transactions are subject to customary terms and conditions and are
expected to close in the third quarter of 2023 with effective dates
of July 1, 2023.
Civitas plans to hold a conference call to discuss the
transactions at 6:30 a.m. MDT (8:30 a.m. EDT) on June 20, 2023.
Participation details are included within this release. Slides
accompanying today’s release are available at
www.civitasresources.com.
Transaction Highlights
- Permian Basin entry with immediate scale: The combined
transactions will add approximately 68,000 net acres (90%
held-by-production) in the Midland and Delaware basins and will add
combined proved reserves of approximately 335 MMBoe, as of year-end
2022. The transactions will increase Civitas’ existing production
by 60%, adding approximately 100 MBoe/d (54% oil) of current
production with the acquired assets expected to average
approximately 105 Mboe/d from close through year-end 2023.
- Adds premium, low breakeven oil inventory, enhances
oil-weighting and margins: Combined, the acquisitions will add
about 800 gross locations with approximately two-thirds having an
estimated IRR of more than 40% at $70/Bbl WTI and $3.50/MMBtu Henry
Hub NYMEX pricing. The Company’s pro forma oil-weighting is
expected to increase to nearly 50%.
- Attractively priced, immediately accretive to key financial
metrics: The acquisitions are attractively priced at 3.0x 2024
estimated Adjusted EBITDAX(1) (after taking into account the
consummation of the transactions), in-line with recent Permian
transactions. The transactions are expected to deliver an estimated
35% uplift to 2024 Free Cash Flow per share. Civitas expects to
generate approximately $1.1 billion of pro forma Free Cash Flow in
2024 at $70/Bbl WTI and $3.50/MMBtu Henry Hub NYMEX pricing
- Increases peer-leading dividend and remains committed to
long-term balance sheet strength: Under its existing dividend
framework, Civitas expects that its total pro forma dividend will
increase by about 20% in 2024. As of the third quarter of 2023,
Civitas expects leverage to be approximately 1.1x with a reduction
target of less than 1x by year-end 2024. To accelerate debt
reduction, the Company amended its share buyback authorization to
$500 million through year-end 2024 (previously $1 billion through
year-end 2024). In addition, the Company plans to sell
approximately $300 million in non-core assets by mid-2024.
- Balanced portfolio maximizes capital allocation
flexibility: Post close, Civitas will have a more balanced
asset portfolio with basin and commodity diversity. The
transactions will provide flexibility in future capital allocation
and optimize returns.
(1)
Non-GAAP financial measure; see “Non-GAAP
Measures” at the end of this release for more information.
“These accretive and transformative transactions will
immediately create a stronger, more balanced and sustainable
Civitas,” said Chris Doyle, Civitas President & CEO. “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. We will soon have
nearly a decade of price-resilient, high-return drilling inventory.
Our strong capital structure allowed us to capture these
transformational assets, and, importantly, behind the strength of
the pro forma business, we have a clear path to reduce leverage and
maintain long-term balance sheet strength.”
Delaware Basin Entry
Civitas has agreed to purchase a portion of Tap Rock’s Delaware
Basin assets for $2.45 billion, which includes $1.5 billion in cash
and approximately 13.5 million shares of Civitas common stock
valued at approximately $950 million, subject to customary
anti-dilution and purchase price adjustments. Tap Rock will retain
its ownership of the Olympus development area.
The assets include approximately 30,000 net acres, primarily
located in Eddy and Lea counties, New Mexico, an area widely
considered to be the core of the Delaware Basin. First quarter 2023
average production was approximately 59 MBoe/d, of which 52% was
oil. The Company will have an inventory of approximately 350
high-quality locations in the Delaware Basin.
Midland Basin Entry
Civitas has also agreed to purchase Hibernia’s Midland Basin
assets for $2.25 billion in cash, subject to customary purchase
price adjustments. The assets include approximately 38,000 net
acres in Upton and Reagan counties, Texas – an active and well
delineated area in the Midland Basin. First quarter 2023 average
production was approximately 41 MBoe/d, of which 56% was oil. The
Company will have an inventory of approximately 450 high-quality
locations on a contiguous acreage position in the Midland
Basin.
Financing
Total consideration for the two transactions is approximately
$4.7 billion. Civitas plans to fund the two transactions through
the incurrence of approximately $2.7 billion of unsecured senior
debt, approximately 13.5 million shares of Civitas common stock
valued at $950 million, approximately $600 million in borrowings
under the Company’s undrawn credit facility and approximately $400
million of cash-on-hand. Bank of America and JP Morgan are also
providing Civitas with $3.5 billion of committed financing for the
transaction.
Outlook
With two producing basins, Civitas will have the ability to flex
capital investments and activity levels between assets to maximize
returns, ensure desired outcomes, and mitigate potential
operational and timing risks. Guidance on Civitas and the impact of
the transactions is shown below. Civitas expects to provide
additional guidance details upon closing.
CIVI 2023 Guidance
Permian
Aug-Dec 2023
CIVI Pro Forma 2023
Combined(2)
CIVI Pro Forma 2024
Combined(2)
Total Production (Mboe/d)
160 − 170
100 − 110
200 – 220
270 − 290
Oil Production (Mboe/d)
72 − 77
53 − 58
95 – 105
130 − 140
% Liquids
68 − 70%
74 − 76%
70 − 73%
71 − 74%
Capital Expenditures ($MM)
$800 − $910
$375 − $475
$1,175 − $1,385
$1,600 − $1,800
(2) Assumes an estimated close date of
August 1, 2023.
Advisors
BofA Securities and Guggenheim Securities, LLC are serving as
financial advisors, Kirkland & Ellis is serving as legal
advisor, and DrivePath Advisors is serving as communication advisor
for Civitas. Goldman Sachs also provided strategic advice to the
Company.
JP Morgan and Baker Botts L.L.P. advised Hibernia, and Jefferies
and Vinson & Elkins LLP advised Tap Rock.
Conference Call Information
The Company plans to host a conference call to discuss these
transactions at 6:30 a.m. MDT (8:30 a.m. EDT) on June 20, 2023. To
participate in the call, please dial toll free (888) 660-6128 or
(929) 203-0879 and use Conference ID 4021134. A live webcast will
be available on the Investor Relations section of the Company’s
website at www.civitasresources.com.
About Civitas Resources, Inc.
Civitas Resources, Inc. is Colorado’s first carbon neutral oil
and gas producer and is focused on developing and producing crude
oil, natural gas, and natural gas liquids in Colorado’s
Denver-Julesburg Basin. The Company is committed to pursuing
compelling economic returns and cash flow while delivering
best-in-class cost leadership and capital efficiency. Civitas is
dedicated to safety, environmental responsibility, and implementing
industry leading practices to create a positive local impact. For
more information about Civitas, please visit
www.civitasresources.com.
About NGP
NGP is a premier private equity firm that believes energy is
essential to progress. Founded in 1988, NGP is moving energy
forward by investing in innovation and empowering energy
entrepreneurs in natural resources and energy transition. With over
$20 billion of cumulative equity commitments, NGP backs portfolio
companies focused on responsibly solving and securing the energy
needs of today and leading the way to a cleaner, more reliable and
more affordable energy future. For more information, visit
www.ngpenergy.com.
Forward-Looking Statements and Cautionary Statements
Certain statements in this release concerning future
opportunities for Civitas, future financial performance and
condition, guidance and any other statements regarding Civitas’
future expectations, beliefs, plans, objectives, financial
conditions, returns to shareholders assumptions or future events or
performance that are not historical facts are “forward-looking”
statements based on assumptions currently believed to be valid.
Forward-looking statements are all statements other than statements
of historical facts. The words “anticipate,” “believe,” “ensure,”
“expect,” “if,” “intend,” “estimate,” “probable,” “project,”
“forecasts,” “predict,” “outlook,” “aim,” “will,” “could,”
“should,” “would,” “potential,” “may,” “might,” “anticipate,”
“likely” “plan,” “positioned,” “strategy,” and similar expressions
or other words of similar meaning, and the negatives thereof, are
intended to identify forward-looking statements. Specific
forward-looking statements include statements regarding Civitas’
plans and expectations with respect to the transactions
contemplated by the definitive agreements related to the
acquisitions of Hibernia and Tap Rock (collectively, the
"Acquisitions") and the anticipated impact of the Acquisitions on
Civitas’ results of operations, financial position, growth
opportunities, reserve estimates and competitive position. The
forward-looking statements are intended to be subject to the safe
harbor provided by Section 27A of the Securities Act of 1933, as
amended, Section 21E of the Securities Exchange Act of 1934, as
amended (the “Securities Act”), and the Private Securities
Litigation Reform Act of 1995.
These forward-looking statements involve significant risks and
uncertainties that could cause actual results to differ materially
from those anticipated, including, but not limited to, Civitas’
future financial condition, results of operations, strategy and
plans; the ability of Civitas to realize anticipated synergies
related to the Acquisitions in the timeframe expected or at all;
changes in capital markets and the ability of Civitas to finance
operations in the manner expected; the effects of commodity prices;
and the risks of oil and gas activities. Additionally, risks and
uncertainties that could cause actual results to differ materially
from those anticipated also include: declines or volatility in the
prices we receive for our oil, natural gas, and natural gas
liquids; general economic conditions, whether internationally,
nationally or in the regional and local market areas in which we do
business, including any future economic downturn, the impact of
continued or further inflation, disruption in the financial markets
and the availability of credit on acceptable terms; the effects of
disruption of our operations or excess supply of oil and natural
gas due to world health events and the actions by certain oil and
natural gas producing countries including Russia; the continuing
effects of the COVID-19 pandemic, including any recurrence or the
worsening thereof; the ability of our customers to meet their
obligations to us; our access to capital on acceptable terms; our
ability to generate sufficient cash flow from operations,
borrowings, or other sources to enable us to fully develop our
undeveloped acreage positions; our ability to continue to pay
dividends at their current level or at all; the presence or
recoverability of estimated oil and natural gas reserves and the
actual future sales volume rates and associated costs;
uncertainties associated with estimates of proved oil and gas
reserves; the possibility that the industry may be subject to
future local, state, and federal regulatory or legislative actions
(including additional taxes and changes in environmental, health
and safety regulation and regulations addressing climate change);
environmental, health and safety risks; seasonal weather
conditions, as well as severe weather and other natural events
caused by climate change; lease stipulations; drilling and
operating risks, including the risks associated with the employment
of horizontal drilling and completion techniques; our ability to
acquire adequate supplies of water for drilling and completion
operations; availability of oilfield equipment, services, and
personnel; exploration and development risks; operational
interruption of centralized oil and natural gas processing
facilities; competition in the oil and natural gas industry;
management’s ability to execute our plans to meet our goals;
unforeseen difficulties encountered in operating in new geographic
areas; our ability to attract and retain key members of our senior
management and key technical employees; our ability to maintain
effective internal controls; access to adequate gathering systems
and pipeline take-away capacity; our ability to secure adequate
processing capacity for natural gas we produce, to secure adequate
transportation for oil, natural gas, and natural gas liquids we
produce, and to sell the oil, natural gas, and natural gas liquids
at market prices; costs and other risks associated with perfecting
title for mineral rights in some of our properties; political
conditions in or affecting other producing countries, including
conflicts in or relating to the Middle East, South America and
Russia (including the current events involving Russia and Ukraine),
and other sustained military campaigns or acts of terrorism or
sabotage; and other economic, competitive, governmental,
legislative, regulatory, geopolitical, and technological factors
that may negatively impact our businesses, operations, or pricing.
Expectations regarding business outlook, including changes in
revenue, pricing, capital expenditures, cash flow generation,
strategies for our operations, oil and natural gas market
conditions, legal, economic and regulatory conditions, and
environmental matters are only forecasts regarding these
matters.
Additional information concerning other risk factors is also
contained in Civitas’ most recently filed Annual Report on Form
10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K
and other Securities and Exchange Commission (“SEC”) filings. All
forward-looking statements speak only as of the date they are made
and are based on information available at that time. Civitas does
not assume any obligation to update forward-looking statements to
reflect circumstances or events that occur after the date the
forward-looking statements were made or to reflect the occurrence
of unanticipated events except as required by federal securities
laws. As forward-looking statements involve significant risks and
uncertainties, caution should be exercised against placing undue
reliance on such statements.
Disclaimer
The common stock repurchase authorization permits Civitas to
make repurchases on a discretionary basis as determined by
management, subject to market conditions, applicable legal
requirements, available liquidity, compliance with the company's
debt agreements and other appropriate factors. Acquisitions under
this repurchase authorization are to be made through open market or
privately negotiated transactions and may be made pursuant to plans
entered into in accordance with Rule 10b5-1 and/or Rule 10b-18 of
the Securities Exchange Act of 1934. This repurchase authorization
does not obligate Civitas to acquire any particular amount of
common stock or warrants, and may be modified, extended, suspended
or discontinued at any time without prior notice. No assurance can
be given that any particular amount of common stock or warrants
will be repurchased.
Non-GAAP Measures
To provide investors with additional information in connection
with our results as determined in accordance with generally
accepted accounting principles in the United States (“GAAP”), we
disclose certain non-GAAP financial measures. The non-GAAP
financial measures include Adjusted EBITDAX, free cash flow and
related calculations. We believe the non-GAAP financial measures
provide users of our financial information with additional
meaningful comparisons between the current results and results of
prior periods, as well as comparisons with peer companies. These
non-GAAP financial measures are not measures of financial
performance in accordance with GAAP and may exclude items that are
significant in understanding and assessing our financial results.
Therefore, these measures should not be considered in isolation or
as an alternative or superior to GAAP measures. You should be aware
that our presentation of these measures may not be comparable to
similarly-titled measures used by other companies.
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version on businesswire.com: https://www.businesswire.com/news/home/20230620182966/en/
For further information, please contact:
Investor Relations: John Wren, ir@civiresources.com
Media: Rich Coolidge, info@civiresources.com
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