Vital Energy, NOG expand Delaware Basin footprint with $1.1 billion Point Energy acquisition

(WO) — Vital Energy and Northern Oil and Gas have signed an agreement to acquire Point Energy Partners for $1.1 billion. Vital Energy will purchase 80% of Point’s assets, while NOG will acquire the remaining 20%. The deal is expected to close by the end of the third quarter of 2024.

This acquisition will increase Vital Energy’s Delaware Basin assets by 25%, bringing its total to 84,000 net acres. The purchase adds 68 gross inventory locations and boosts production by 30,000 barrels of oil equivalent per day. The deal is projected to be immediately accretive, enhancing Vital Energy’s Adjusted Free Cash Flow and EBITDAX.

Jason Pigott, Vital Energy’s president and CEO, said, “This bolt-on acquisition is a great fit, adding high-value inventory and production in our core operating areas. We expect to continue demonstrating our ability to capture, integrate, and create substantial value from acquired assets through optimized development plans, lower capital costs, and proven operating practices, resulting in higher future cash flows.”

To fund the purchase, Vital Energy plans to use a $600 million bridge loan and has expanded its credit facility to $1.5 billion. The company also anticipates a 25% increase in its quarterly dividend starting in Q3 2024. The transaction aligns with Vital Energy’s strategy to grow its core operating areas and optimize its Permian operations.

Price adjustments are expected to total approximately $75 million, reducing the total consideration to about $1.025 billion. Vital Energy will fund its $820 million share through its expanded credit facility, with Wells Fargo committed to supporting the increased elected commitment.

The transaction is attractively priced at approximately 2.4x next 12 months (NTM) Consolidated EBITDAX, comparing favorably with Vital Energy’s current valuation and recent transactions in the basin. The purchase price is substantially supported by the value of proved developed producing reserves and eight work-in-process wells. Third-party reserve engineer Ryder Scott estimates the PDP reserves and work-in-process wells to have a PV-10 of $742 million and $71 million, respectively. The deal is projected to improve key financial metrics, including a more than 30% increase in NTM Adjusted Free Cash Flow and a greater than 20% increase in NTM Consolidated EBITDAX.

The acquisition adds high-return inventory and oil-weighted production, with 68 gross inventory locations (49 net) and an estimated average breakeven oil price of $47 per barrel NYMEX WTI. The assets include approximately 16,300 net acres and net production of about 30.0 thousand barrels of oil equivalent per day (67% oil) as of the effective date.

Robust hedging measures have been put in place to support cash flows and leverage reduction targets. Vital Energy has recently hedged a significant portion of its expected 2025 oil production. Leverage is expected to be around 1.5x at closing, with a reduction anticipated to approximately 1.3x within 12 months, based on current commodity prices.

The acquisition will expand Vital Energy’s Delaware Basin position by approximately 25% to 84,000 net acres, making the Delaware Basin more than one-third of the company’s oil production. Over the past 15 months, Vital Energy has established a high-quality core operating position in the Delaware Basin, complementing its substantial Midland Basin leasehold.

Post-acquisition, Vital Energy plans to moderate development activities compared to Point’s recent program. Point recently turned in-line a 15-well package, which has driven elevated production rates. No new wells are planned before the transaction closes, leading to an estimated 50% decline in daily production from peak rates in April 2024.

Production from the Point assets in Q4 2024 is expected to average approximately 15.5 MBOE/d (64% oil). Vital Energy anticipates investing about $45 million in the new properties during the fourth quarter, operating one drilling rig and completing seven wells. A one-rig development program is projected to drill and complete 12 wells over a 12-month period, resulting in total production of about 15.0 MBOE/d (64% oil) and capital investments of approximately $100 million.