Vital Energy and Northern Oil and Gas have entered into a definitive agreement to acquire Point Energy Partners for a total of $1.1 billion.
Vital Energy will secure 80% ownership of Point’s assets, while NOG will acquire the remaining 20%. The transaction is anticipated to close by the end of the third quarter of 2024.
Significant Boost to Delaware Basin Assets
This acquisition will substantially increase Vital Energy’s presence in the Delaware Basin by 25%, expanding its total net acreage to 84,000 acres.
The purchase includes 68 gross inventory locations and adds 30,000 barrels of oil equivalent per day to production. The deal is expected to be immediately accretive, positively impacting Vital Energy’s Adjusted Free Cash Flow and EBITDAX.
Strategic Fit and Value Creation
Jason Pigott, President and CEO of Vital Energy, expressed his enthusiasm for the acquisition, highlighting its strategic fit and potential for value creation.
He emphasized the company’s proven ability to capture, integrate, and maximize value from acquired assets through optimized development plans, cost reduction, and efficient operations.
Financial Details and Funding
To finance the acquisition, Vital Energy intends to utilize a $600 million bridge loan and has expanded its credit facility to $1.5 billion. The company also plans to increase its quarterly dividend by 25% starting in the third quarter of 2024.
Attractive Valuation and Positive Impact on Financial Metrics
The transaction is priced at approximately 2.4x the next 12 months (NTM) Consolidated EBITDAX, which compares favorably to Vital Energy’s current valuation and recent transactions in the basin.
The purchase price is largely supported by the value of proved developed producing reserves and eight work-in-process wells, with a PV-10 estimated by Ryder Scott at $742 million and $71 million, respectively.
The deal is projected to improve key financial metrics, including a significant increase in NTM Adjusted Free Cash Flow and NTM Consolidated EBITDAX.
High-Return Inventory and Oil-Weighted Production
The acquired assets offer 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 30,000 barrels of oil equivalent per day (67% oil) as of the effective date.
Hedging Strategy and Leverage Reduction
Robust hedging measures have been implemented to support cash flows and leverage reduction targets. Vital Energy has recently hedged a considerable portion of its expected 2025 oil production.
Leverage is estimated to be around 1.5x at closing, with a reduction anticipated to approximately 1.3x within 12 months, based on current commodity prices.
Expanding Delaware Basin Presence
The acquisition will significantly expand Vital Energy’s position in the Delaware Basin by roughly 25%, making the Delaware Basin responsible for over 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 holdings.
Post-Acquisition Development Plans
Following the acquisition, Vital Energy plans to moderate development activities compared to Point’s recent program, which included a 15-well package that led to elevated production rates.
No new wells are planned before the transaction closes, resulting in an estimated 50% decline in daily production from peak rates in April 2024.
Fourth Quarter 2024 Production and Investment Outlook
Production from the Point assets in the fourth quarter of 2024 is expected to average around 15.5 MBOE/d (64% oil).
Vital Energy anticipates investing approximately $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 roughly $100 million.