Civitas Resources enters Permian Basin in $4.7 billion deal

June 20 (Reuters) – Civitas Resources ( CIVI.N ) said on Tuesday it would buy Permian Basin oil and gas operations managed by private equity firm NGP Energy Capital Management for $4.7 billion, expanding the business to the lucrative shale patch.

The deal is transformative for Civitas, which until now operated exclusively in Colorado̵[ads1]7;s Denver-Julesburg (DJ) basin. In addition to entering an area considered the heart of the US shale industry, the acquisition will increase the company’s production by 60%, Civitas said in a statement.

Under the terms, Civitas has agreed to purchase a portion of Tap Rock Resources’ assets and all of Hibernia Energy III’s operations. It will pay in cash using a mix of existing reserves and debt, and issue 13.5 million shares to NGP.

“Simply put, these transactions make Civitas a better company, and we see a 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, which Reuters first reported on Monday, sent Civitas’ shares 6% lower. M&A analysts said the scale of the deal could give investors pause.

“In terms of market capitalization, Civitas is executing one of the more ambitious deal-driven expansions in the recent market,” said Andrew Dittmar, director at Enverus Intelligence Research.

However, one of the largest shareholders expressed support, citing the benefits of adding high-quality inventory and diversifying the portfolio.

“We have great confidence in this team and look forward to seeing them complete this transformative transaction,” Kimmeridge Managing Partner Ben Dell said in a statement.

The Permian, which spans parts of Texas and New Mexico, has seen significant activity in recent deals. Producers have been searching for inventory in a region known for its high productivity, allowing private equity firms, such as NGP, to profitably exit investments there.

Enverus’ Dittmar said Civitas paid a similar price multiple to other recent buyers, although some of these had greater opportunities around undeveloped acreage.

Denver-based Civitas said the cash flow generated by the assets was a significant draw: it would allow dividend payments in 2024 to be increased by about 20%.

To help the company repay the debt it used to finance the acquisitions, it would halve its $1 billion share buyback target, originally announced in February, to the end of next year.

Reporting by David French in New York and Mrinalika Roy in Bengaluru; Editing by Shilpi Majumdar, Emelia Sithole-Matarise and Grant McCool

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