Colorado-based Civitas Resources plans to boost its presence in the Permian with a $5-billion acquisition, Reuters has reported, citing unnamed sources.
The targets of the acquisition include Hibernia Resources the majority of assets owned by Tap Rock Resources. Both are owned by private equity firm NGP, with which Civitas is currently in talks about the two portfolio companies.
Two months ago, Reuters reported, again citing unnamed sources, that NGP was considering a sale of the two companies in the Permian, eyeing proceeds of some $7 billion.
The sale plans emerged amid higher oil prices and greater investor appetite for oil and gas participation, as West Texas Intermediate hit $81 per barrel in the wake of OPEC+’s surprise decision to cut production further.
Now that circumstances and prices have changed, with WTI hovering around $70 per barrel, the valuations of Hibernia Resources and Tap Rock Resources have also declined.
Civitas produces around 160,000 barrels of crude daily. Tap Rock’s average output is in excess of 100,000 barrels daily. Hibernia does not disclose production numbers but its assets are in the Midland area of the Permian Basin.
The Permian, which is still the most prolific U.S. shale play, has been identified as the focal point of a coming wave of mergers and acquisitions in the industry. Analysts believe that this year could be a turning point for U.S. upstream takeovers and expect activity to pick up following a lackluster M&A scene in the shale patch last year despite the higher oil prices.
In 2022, the number of M&As in the U.S. upstream segment fell to the lowest level since 2005, with buyers increasingly picky and targeting top-tier locations in larger deals, Enverus said in a report early this year.
However, “The world needs more US oil, and the Permian has several thousand locations remaining that are viewed as high quality,” Pete Bowden, global head of industrial, energy and infrastructure banking at Jefferies Financial Group, told Bloomberg in late April.
By Charles Kennedy for Oilprice.com
Charles is a writer for Oilprice.com