Vital Energy and Northern Oil and Gas Acquire Point Energy's Shale Assets for $1.1 Billion

On July 28, 2024, Vital Energy, Inc. (NYSE: VTLE) ("Vital Energy" or the "Company") announced that it has entered into a definitive joint purchase and sale agreement to acquire the assets of Point Energy Partners ("Point"), a company within the Vortus Investments portfolio. This acquisition will substantially expand the Company’s operational scale and footprint in the Delaware Basin, as well as enhance its portfolio with high-value development inventory.

The agreement, made in partnership with Northern Oil and Gas, Inc. ("NOG"), outlines that the two companies will acquire Point Energy’s assets through an all-cash transaction valued at $1.1 billion. Vital Energy will acquire 80% of Point’s assets, while NOG will take the remaining 20%. The transaction is anticipated to close by the end of the third quarter of 2024, with an effective date of April 1, 2024, pending standard closing conditions.

Closing price adjustments are anticipated to amount to around $75 million, bringing the total consideration down to approximately $1.025 billion. Vital Energy plans to finance its $820 million share, after accounting for expected purchase price adjustments, using its credit facility, which has recently been expanded to $1.5 billion. Wells Fargo, National Association, has committed to this increased elected amount upon the transaction's completion.

Highlights

The transaction, priced at approximately 2.4x next 12 months (NTM) Consolidated EBITDAX as of the effective date, is attractively priced and immediately accretive, offering favorable comparisons to Vital Energy’s current valuation and recent basin transactions. The purchase price is significantly supported by the value of proved developed producing (PDP) reserves and eight work-in-process wells. According to third-party reserve engineer Ryder Scott, these reserves and wells have a PV-10 value of $742 million and $71 million, respectively. Upon closing, the deal is expected to immediately enhance key financial metrics, including a greater than 30% increase in NTM Adjusted Free Cash Flow and over a 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 average breakeven oil price of $47 per barrel NYMEX WTI. The assets include around 16,300 net acres and net production of approximately 30.0 thousand barrels of oil equivalent per day (67% oil) as of the effective date.

Vital Energy has recently hedged a significant portion of its expected 2025 oil production to secure cash flows and support leverage reduction goals. The Company anticipates a leverage ratio of approximately 1.5x at closing and expects it to decrease to around 1.3x within 12 months, given current strip commodity prices.

This transaction also expands Vital Energy’s Delaware Basin operational scale. Over the past 15 months, the Company has established a strong core position in the Delaware Basin, enhancing its substantial Midland Basin leasehold. The acquisition will boost the Company’s Delaware Basin position by about 25% to 84,000 net acres, with the Basin expected to represent more than one-third of the Company’s oil production post-closing.

"This acquisition aligns perfectly with our strategy, enhancing our core operating areas with high-value inventory and production. It further strengthens our position in the Delaware Basin and complements our Permian operations. We anticipate continuing to showcase our capability to capture, integrate, and generate significant value from acquired assets through optimized development plans, reduced capital costs, and effective operating practices, ultimately leading to increased future cash flows," said Jason Pigott, President and Chief Executive Officer.