Vital Energy has signed a definitive agreement to acquire the assets of Forge Energy II Delaware, an EnCap portfolio company, for total consideration of $540m.
The company signed the agreement in partnership with an undisclosed third party, where the two will jointly acquire Forge’s assets in the Delaware Basin.
Vital will acquire 70% of the assets for $378m and will operate the asset, while the third party will acquire the remaining 30% for $162m.
The acquisition is expected to be completed in the late second quarter of this year, subject to customary closing conditions.
Upon closing, the energy company intends to operate only one rig on the acquired leasehold, reducing from two rigs operated by the current owner.
Vital intends to fund the acquisition using its credit facility.
Vital Energy president and chief executive officer Jason Pigott said: “This accretive acquisition is attractively priced and significantly expands Vital Energy’s Permian focus, adding a core operating area in the Delaware Basin.
“We have a proven track record of building value through our disciplined acquisition strategy. Today’s deal significantly enhances our outlook for Free Cash Flow generation which we will use to pay down debt and strengthen our balance sheet.”
Vital said that the acquisition will further expand its operations in the Permian Basin and establish a core operating position in the Delaware Basin.
It will expand the company’s Permian Basin leasehold to nearly 198,000 net acres and establish core operating positions in Pecos, Reeves, and Ward counties.
The transaction will also add about 100 gross high-value oil locations in the 2nd and 3rd Bone Spring and Wolfcamp A with an average breakeven oil price of about $50, with potential upside.
It adds nearly 42,000 gross acres and current production of about 9,500 barrels of oil equivalent per day, 65% oil, net to the company.
Houlihan Lokey and KeyBank served as the financial advisors and Latham & Watkins as the legal counsel to Vital Energy on the transaction. RBC Richardson Barr served as the financial advisor and O’Melveny & Myers as legal counsel to Forge.
Last month, Reuters reported that EnCap Investments unveiled plans to sell Novo Oil & Gas and Forge Energy II, two upstream operators in the Permian Basin in the US.
