Dealmaking in the Permian Basin is continuing to make headlines following the breakneck merger activity over the past year, with two separate acquisitions unveiled to start this week.
Tulsa-based Vital Energy Inc., a Permian pure-play, partnered with Northern Oil and Gas Inc. (NOG) to snag Delaware sub-basin properties from private equity-sponsored Point Energy Partners.
The all-cash transaction with the Vortus Investments portfolio company was valued at around $1.1 billion. Vital is acquiring 80% of the assets, with NOG buying 20%.
"This bolt-on is a great fit for us, adding high-value inventory and production in the heart of our core operating areas,” Vital CEO Jason Pigott said. “Furthermore, it expands our growing Delaware Basin position and balances our Permian operations.
“We expect to continue to demonstrate our ability to capture, integrate and create substantial value on acquired assets through optimized development plans, lower capital costs and proven operating practices, resulting in higher future cash flows.”
Vital has been an active acquirer in the Permian Delaware of West Texas. NOG last year also partnered with Vital in another Delaware transaction.
During a conference call Monday, Pigott was asked if Vital could continue making deals.
“Today we are focused on getting this new transaction closed and integrated into Vital,” Pigott said. “I can tell you that the good deals are getting harder to find…We have a high bar” for future transactions…
“Any deal must make us better and not just bigger…We’ll have other things pop up. They pop up. But I'd say we're more focused now on just delineating, getting our optimization in place and again, finding new wells and new zones under our expanded footprint that we put together over the last year…”
The newly acquired assets include 16,400 net acres with output of 30,000 boe/d. The transaction would increase Vital’s Delaware position by around 25% to 84,000 net acres. NOG gained about 4,000 acres.
Once the transaction is completed, now set for the end of September, Vital plans to “moderate development activities” on the Point assets.
““The Point assets sit directly in our area of interest and close to our existing Delaware holdings,” NOG President Adam Dirlam said.
Permian Resources Bolt-On
In another Permian Delaware deal in West Texas, Occidental Petroleum Corp. agreed to sell a package of assets in Reeves County to Permian Resources Corp. for about $817.5 million.
The agreement includes 29,500 net acres, 9,900 net royalty acres and 15,000 boe/d.
“This acquisition is a natural fit for us given its high-return inventory and proximity to our current operated position,” Permian Resources Co-CEO Will Hickey said.
The bolt-on “adds core inventory, which immediately competes for capital and is accretive to key metrics over both the short and long-term,” Co-CEO James Walter said. “Furthermore, the substantial midstream infrastructure and surface acres represent material value and will provide us with significant flexibility going forward.”
The acquired assets in Reeves County include a “fully integrated midstream system,” according to Permian Resources. Infrastructure includes more than 100 miles of operated oil and gas gathering systems and 10,000-plus surface acres. There also are saltwater disposal wells, a recycling facility, fracture ponds and water wells.
“The midstream gathering infrastructure acquired in the transaction fully accommodates associated volumes, including incremental capacity for future growth or additional third-party volumes,” according to Permian Resources executives.
Dealmaking among U.S. natural gas and oil operators has shown few signs of slowing this year. One reason for consolidation can be traced to improving efficiencies, University of Houston energy expert Ramanan Krishnamoorti told NGI. He is vice president of energy and innovation.
Krishnamoorti explained that when companies have adjacent operations, like the two recent deals, efficiencies can become key to combining. The merger and acquisition (M&A) activity, he said, also is geared to improving takeaway access.
Of the two announcements, Enverus Intelligence Research’s Andrew Dittmar, principal analyst, said the acquisitions “are likely representative of what much Permian M&A is likely to look like going forward.
“Large, core acquisition opportunities in the Permian are increasingly rare. Companies will be looking to jump on any noncore assets that come to market from the big buyers like Occidental,” he said.
“The market outlook is great for private equity investors that have remaining positions to sell, even if the assets have relatively limited remaining inventory, are located outside the core fairways, or both.”
