(Reuters) – Civitas Resources Inc (CIVI.N) said on Tuesday it will acquire oil and gas operations in the Permian Basin operated by private equity firm NGB Energy Capital Management for $4.7 billion, expanding its operations into the lucrative shale patch.
The deal is transformative for Civitas, which has so far operated solely in Colorado’s Denver-Goldsburg (DJ) basin. Civitas said in a statement that in addition to entering a region considered the heart of the US shale industry, the acquisition will boost the company’s production by 60%.
Under the terms, Civitas has agreed to purchase a portion of the assets of Tap Rock Resources and all operations of Hibernia Energy III. It will be paid in cash, using a mix of existing reserves and debt, and issue 13.5 million NGP shares.
“Simply put, these transactions make Civitas a better company, and we see tremendous opportunity to add value in the Permian that will complement our leading oil position in the DJ Basin,” Civitas CEO Chris Doyle told analysts.
News of the deal, first reported by Reuters on Monday, sent Civitas shares down 6%. M&A analysts said the size of the deal may give investors pause.
“In terms of market capitalization, Civitas is making one of the most ambitious deal-driven expansions in recent market,” said Andrew Dittmar, principal at Enverus Intelligence Research.
However, one of its largest shareholders voiced its support, citing the benefits of adding quality stock and portfolio diversification.
“We have great confidence in this team and look forward to watching them deliver on this transformative deal,” Ben Dale, Managing Partner of Kimmeridge, said in a statement.
The Permian region, which spans parts of Texas and New Mexico, has seen a lot of activity in recent deals. Producers were looking for stock in an area known for its high productivity, which would allow private equity firms, such as NGP, to profitably exit investments there.
Ditmar of Enviros said Civitas paid a similar price to other high-end buyers, though some of those have higher chances around undeveloped acreage.
Denver-based Civitas said the cash flow generated by the assets was a big draw: It would allow dividend payments in 2024 to increase by about 20%.
To help the company pay off the debt it was using to fund acquisitions, it will halve its $1 billion share buyback goal, initially announced in February, and running through the end of next year.
Additional reporting by David French in New York and Mrinalika Roy in Bengaluru; Editing by Shelby Majumdar, Emilia Sithole Matares, and Grant McCall
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