Vital to Expand in Permian Basin with $1.17B Acquisitions

Vital Energy Inc. has signed three acquisition agreements with affiliates of Henry Energy LP and Henry Resources LLC, Tall City Property Holdings III LLC, and Maple Energy Holdings LLC that will increase its footprint in the Permian Basin by nearly 53,000 net acres.

The three agreements have a total aggregate consideration of approximately $1.165 billion, subject to customary closing price adjustments, Vital said in a recent news release, adding that the transactions are all expected to close in the fourth quarter.

The combined transactions will add proved reserves of approximately 248 million barrels of oil equivalent that are 44 percent oil, estimated as of year-end 2022, Vital said. The transactions will increase the company’s current production by approximately 35,000 barrels of oil equivalent per day (boepd).

Vital will purchase substantially all of Henry’s Midland and Delaware basin assets in an all-equity transaction consisting of 3.72 million common shares and 4.54 million shares of perpetual mandatorily convertible preferred securities, net of customary closing price adjustments. The effective date of the acquisition will be August 1.

Vital will purchase all of Tall City’s Delaware Basin assets for $285 million in cash and 1.58 million common shares, net of customary closing price adjustments. The effective date of the acquisition will be July 1.

Vital will buy all of Maple’s Delaware Basin assets in an all-equity transaction consisting of 3.31 million common shares, net of customary closing price adjustments. The effective date of the acquisition will be August 1.

Vital plans to fund the transactions through the issuance of approximately 8.61 million shares of its common stock, 4.54 million shares of perpetual mandatorily convertible preferred securities, approximately $285 million in borrowings under its senior secured facility, and approximately $100 million of estimated purchase price adjustments, according to the release.

After the transactions close, Vital said it expects to have approximately 250,000 net acres and an estimated average 2024 total production of approximately 112,000 boepd, an increase of more than 25 percent versus standalone expectations. The company’s estimated average 2024 oil production is expected to increase approximately 30 percent to 55,000 boepd.

Vital projects the transactions to add approximately 150 gross high-value locations with an average breakeven price of approximately $50 per barrel based on the West Texas Intermediate benchmark. The company plans to maintain more than eight years of oil-weighted inventory at its expected four-rig pace of development. Upon closing, Vital expects to operate one drilling rig on the acquired acreage and utilize a spot completion crew for approximately one month to complete four in-process wells.

"These transactions increase our scale in the Permian and fit with our proven strategy of creating value through disciplined acquisitions", Vital President and CEO Jason Pigott said. "We have demonstrated our ability to effectively consolidate Permian assets and identify sustainable synergies to lower costs, improve margins, and enhance Free Cash Flow. These acquisitions will significantly strengthen our Free Cash Flow outlook and enable us to rapidly delever our balance sheet”.

Vital said it has consistently used a balance of equity and debt to finance high-value acquisitions to strengthen the business. The company has executed $1.7 billion of acquisitions that have made use of a combined total of approximately 50 percent equity and 50 percent debt. Vital’s credit facility borrowing base and elected commitment will increase to $1.5 billion and $1.25 billion, respectively, from $1.3 billion and $1.0 billion, respectively. The company will have access to the full $1.5 billion borrowing base through a committed $250 million term loan facility, according to the release.

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