Vital Energy, Inc. (NYSE: VTLE) ("Vital Energy" or the "Company")
today announced the signing of three definitive agreements that
will materially add scale in the Permian Basin, increase Free Cash
Flow, enhance capital efficiency and significantly reduce leverage.
Combined, the transactions have a total consideration of
approximately $1.1653 billion, subject to customary closing price
adjustments. The agreements were signed with affiliates of Henry
Energy LP and Henry Resources LLC ("Henry"), Tall City Property
Holdings III LLC ("Tall City") and Maple Energy Holdings, LLC
("Maple"). The transactions, which are subject to customary terms
and conditions, are all expected to close in the fourth quarter of
2023.
A conference call and webcast is planned for 7:30 a.m. CT,
Thursday, September 14, 2023. Participation details can be found
within this press release.
Highlights
Increases scale: The combined transactions will
add nearly 53,000 net acres and proved reserves of approximately
248 million barrels of oil equivalent4 ("BOE"), 44% oil, estimated
as of year-end 2022. The transactions will increase Vital Energy’s
current production by approximately 35.0 MBOE/d (50% oil). Pro
forma, Vital Energy will have approximately 250,000 net acres and
estimated average full-year 2024 total production of approximately
112.0 MBOE/d, an increase of more than 25% versus stand alone
expectations. Estimated average full-year 2024 oil production is
expected to increase approximately 30% to 55.0 MBO/d.
Adds high-value, oil-weighted inventory:
Transactions to add approximately 150 gross high-value locations
with an average breakeven price of approximately $50 per barrel
WTI. Pro forma, Vital Energy will maintain more than eight years of
oil-weighted inventory at its expected four-rig pace of
development.
Immediately accretive to key financial metrics:
The acquisitions and pro forma development plan are expected to
increase the Company’s 2024 Free Cash Flow by approximately 90%, at
$80 per barrel WTI. Improvements to capital efficiency are expected
to be recognized in 2024 and be sustainable in the future.
1Non-GAAP financial measure; please see supplemental discussion
of GAAP to non-GAAP financial measures at the end of this
release;2Assumes $80 WTI / $3.40 HH for FY-24; 3Assumes VTLE
September 12, 2023 closing price; 4Henry’s YE-22 reserves converted
to 3-stream
Attractively priced and highly deleveraging:
The combined transactions are attractively priced at 2.9x next 12
months Consolidated EBITDAX1, as of the effective dates. Post
closing, Vital Energy plans to direct substantially all Free Cash
Flow to debt reduction and expects pro forma leverage, at $80 per
barrel WTI, to be approximately 1.0x Net Debt/Consolidated EBITDAX1
by year-end 2024.
"These transactions increase our scale in the Permian and fit
with our proven strategy of creating value through disciplined
acquisitions," said Jason Pigott, President and Chief Executive
Officer. "We have demonstrated our ability to effectively
consolidate Permian assets and identify sustainable synergies to
lower costs, improve margins and enhance Free Cash Flow. These
acquisitions will significantly strengthen our Free Cash Flow
outlook and enable us to rapidly delever our balance sheet."
Transaction Financing
Total consideration for the transactions is approximately $1.165
billion. Vital Energy plans to fund the transactions through the
issuance of approximately 8.61 million shares of its common stock,
4.54 million shares of perpetual mandatorily convertible preferred
securities, approximately $285 million in borrowings under its
senior secured facility and approximately $100 million of estimated
purchase price adjustments.
The Company has consistently used a balance of equity and debt
to finance high-value acquisitions to strengthen the business.
Year-to-date, Vital Energy has executed $1.7 billion of
acquisitions (including today’s) which have utilized a combined
total of approximately 50% equity and 50% debt.
Concurrent with closing, Vital Energy’s credit facility
borrowing base and elected commitment will increase to $1.5 billion
and $1.25 billion, respectively, from $1.3 billion and $1.0
billion, respectively. The Company will have access to the full
$1.5 billion borrowing base through a committed $250 million term
loan facility.
Henry: Vital Energy agreed to purchase
substantially all of Henry’s Midland and Delaware basin assets in
an all-equity transaction consisting of 3.72 million common shares
and 4.54 million shares of perpetual mandatorily convertible
preferred securities, net of customary closing price adjustments.
Effective date of the acquisition will be August 1, 2023.
Tall City: Vital Energy agreed to purchase all
of Tall City’s Delaware Basin assets for $285 million in cash and
1.58 million common shares, net of customary closing price
adjustments. Effective date of the acquisition will be July 1,
2023.
Maple: Vital Energy agreed to purchase all of
Maple’s Delaware Basin assets in an all-equity transaction
consisting of 3.31 million common shares, net of customary closing
price adjustments. Effective date of the acquisition will be August
1, 2023.
Pro Forma Fourth-Quarter 2023 Outlook
Upon closing, Vital Energy expects to operate one drilling rig
on the acquired acreage and utilize a spot completions crew for
approximately one month to complete four "in-process" wells.
The following table provides a pro forma fourth-quarter 2023
outlook in comparison to the Company’s previously-released
guidance, assuming a November 15, 2023 closing date for all
acquisitions. Vital Energy expects to provide additional guidance
upon closing of the transactions.
|
|
Stand Alone VTLE 4Q-23E |
|
Pro Forma VTLE 4Q-23E |
Total production
(MBOE/d) |
|
83.3 - 87.3 |
|
98.0 - 102.0 |
Oil production
(MBO/d) |
|
39.3 - 42.3 |
|
46.5 - 49.5 |
Incurred capital expenditures,
excluding non-budgeted acquisitions ($
MM) |
|
$165 - $180 |
|
$195 - $210 |
Turn-in-lines (# of wells,
gross) |
|
13.0 |
|
17.0 |
Average rig
count |
|
3.0 |
|
3.5 |
Pro Forma 2024 Outlook
Vital Energy expects to realize operational synergies associated
with a larger, consolidated Delaware position and the ability to
optimize activity levels between the Midland and Delaware basins.
The Company plans to prioritize returns and Free Cash Flow
generation and expects to invest $100 - $125 million in the newly
acquired assets in 2024, representing less than half of the
previous operators’ activity levels.
Through the addition of recent hedges, the Company has
significantly derisked its 2024 Free Cash Flow and leverage
outlook, underpinning acquisition cash flows and returns. Vital
Energy has hedged approximately 75% of expected 2024 pro forma oil
volumes at an average price of approximately $75 per barrel
WTI.
The following table provides a pro forma full-year 2024 outlook
in comparison to the Company’s previously-released outlook.
|
|
Stand Alone VTLE FY-24E |
|
Pro Forma VTLE FY-24E |
Total production
(MBOE/d) |
|
86.0 - 90.0 |
|
109.0 - 115.0 |
Oil production
(MBO/d) |
|
41.2 - 44.2 |
|
53.0 - 57.0 |
Incurred capital expenditures,
excluding non-budgeted acquisitions ($
MM) |
|
$650 - $710 |
|
$750 - $850 |
Turn-in-lines (# of wells,
gross) |
|
70 - 75 |
|
87 - 92 |
Average rig
count |
|
3.0 |
|
4.0 |
Advisors
Houlihan Lokey is serving as lead advisor on the combined
transactions. Mizuho and Truist Securities are serving as
co-advisors on Henry and Maple and Key Bank is advising on Tall
City. Akin Gump, Latham & Watkins and Vinson & Elkins are
serving as legal advisors and DrivePath Advisors is serving as
communications advisor.
Guggenheim Securities, LLC, Citigroup and Kirkland & Ellis
advised Tall City. Jackson Walker advised Henry and Vinson &
Elkins advised Maple.
Conference Call Details
Vital Energy plans to host a conference call to discuss these
transactions at 7:30 a.m. CT on Thursday, September 14, 2023. A
slide presentation with additional transaction details has been
posted to the Company's website. Interested parties are invited to
listen to the call via the Company's website at
www.vitalenergy.com, under the tab for "Investor Relations | News
& Presentations." Portfolio managers and analysts who would
like to participate on the call should dial 800.715.9871, using
conference code 1401197. A replay will be available following the
call via the Company's website.
About Vital Energy
Vital Energy, Inc. is an independent energy company with
headquarters in Tulsa, Oklahoma. Vital Energy’s business strategy
is focused on the acquisition, exploration and development of oil
and natural gas properties in the Permian Basin of West Texas.
Additional information about Vital Energy may be found on its
website at www.vitalenergy.com.
Forward-Looking StatementsThis press release
and any oral statements made regarding the contents of this
release, including in the conference call referenced herein,
contain forward-looking statements as defined under Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other
than statements of historical facts, that address activities that
Vital Energy assumes, plans, expects, believes, intends, projects,
indicates, enables, transforms, estimates or anticipates (and other
similar expressions) will, should or may occur in the future are
forward-looking statements. The forward-looking statements are
based on management’s current belief, based on currently available
information, as to the outcome and timing of future events. Such
statements are not guarantees of future performance and involve
risks, assumptions and uncertainties.
General risks relating to Vital Energy include, but are not
limited to, moderating but continuing inflationary pressures and
associated changes in monetary policy that may cause costs to rise;
changes in domestic and global production, supply and demand for
commodities, actions by the Organization of Petroleum Exporting
Countries and other producing countries and the Russian-Ukrainian
military conflict, the decline in prices of oil, natural gas
liquids and natural gas and the related impact to financial
statements as a result of asset impairments and revisions to
reserve estimates, the volatility of oil, natural gas liquids and
natural gas prices, including our area of operation in the Permian
Basin, reduced demand due to shifting market perception towards the
oil and gas industry; competition in the oil and gas industry; the
ability of the Company to execute its strategies, including its
ability to successfully identify and consummate strategic
acquisitions at purchase prices that are accretive to its financial
results and to successfully integrate acquired businesses, assets
and properties, pipeline transportation and storage constraints in
the Permian Basin, the effects and duration of the outbreak of
disease, such as the COVID-19 pandemic, and any related government
policies and actions, long-term performance of wells, drilling and
operating risks, the possibility of production curtailment, the
impact of new laws and regulations, including those regarding the
use of hydraulic fracturing, the impact of legislation or
regulatory initiatives intended to address induced seismicity on
the Company’s ability to conduct its operations; hedging
activities, tariffs on steel, the impacts of severe weather,
including the freezing of wells and pipelines in the Permian Basin
due to cold weather, possible impacts of litigation and
regulations, the impact of the Company’s transactions, if any, with
its securities from time to time, the impact of new environmental,
health and safety requirements applicable to the Company’s business
activities, the possibility of the elimination of federal income
tax deductions for oil and gas exploration and development and
other factors, including those and other risks described in its
Annual Report on Form 10-K for the year ended December 31, 2022,
the preliminary prospectus supplement and those set forth from time
to time in other filings with the Securities and Exchange
Commission ("SEC"). These documents are available through Vital
Energy’s website at www.vitalenergy.com, "Investor Relations" or
through the SEC's Electronic Data Gathering and Analysis Retrieval
System at www.sec.gov. Any of these factors could cause Vital
Energy’s actual results and plans to differ materially from those
in the forward-looking statements. Therefore, Vital Energy can give
no assurance that its future results will be as estimated. Any
forward-looking statement speaks only as of the date on which such
statement is made. Vital Energy does not intend to, and disclaims
any obligation to, correct, update or revise any forward-looking
statement, whether as a result of new information, future events or
otherwise, except as required by applicable law.
This press release and any accompanying disclosures include
financial measures that are not in accordance with generally
accepted accounting principles (“GAAP”), such as Free Cash Flow and
Consolidated EBITDAX. While management believes that such measures
are useful for investors, they should not be used as a replacement
for financial measures that are in accordance with GAAP.
All amounts, dollars and percentages presented in this press
release are rounded and therefore approximate.
Free Cash Flow
Free Cash Flow is a non-GAAP financial measure that the Company
defines as net cash provided by operating activities (GAAP) before
net changes in operating assets and liabilities and non-budgeted
acquisition costs, net, less incurred capital expenditures,
excluding non-budgeted acquisition costs. Management believes Free
Cash Flow is useful to management and investors in evaluating
operating trends in its business that are affected by production,
commodity prices, operating costs and other related factors. There
are significant limitations to the use of Free Cash Flow as a
measure of performance, including the lack of comparability due to
the different methods of calculating Free Cash Flow reported by
different companies.
Consolidated EBITDAX
Consolidated EBITDAX is a non-GAAP financial measure defined in
the Company's Senior Secured Credit Facility as net income or loss
(GAAP) plus adjustments for share-settled equity-based
compensation, depletion, depreciation and amortization, impairment
expense, gains or losses on disposal of assets, mark-to-market on
derivatives, accretion expense, interest expense, income taxes and
other non-recurring income and expenses. Consolidated EBITDAX
provides no information regarding a company's capital structure,
borrowings, interest costs, capital expenditures, working capital
movement or tax position. Consolidated EBITDAX does not represent
funds available for future discretionary use because it excludes
funds required for debt service, capital expenditures, working
capital, income taxes, franchise taxes and other commitments and
obligations. However, management believes Consolidated EBITDAX is
useful to an investor because this measure:
- is widely used by
investors in the oil and natural gas industry to measure a
company's operating performance without regard to items that can
vary substantially from company to company depending upon
accounting methods, the book value of assets, capital structure and
the method by which assets were acquired, among other factors;
- helps investors to
more meaningfully evaluate and compare the results of the Company's
operations from period to period by removing the effect of the
Company's capital structure from the Company's operating structure;
and
- is used by
management for various purposes, including (i) as a measure of
operating performance, (ii) as a measure of compliance under the
Senior Secured Credit Facility, (iii) in presentations to the board
of directors and (iv) as a basis for strategic planning and
forecasting.
There are significant limitations to the use of Consolidated
EBITDAX as a measure of performance, including the inability to
analyze the effect of certain recurring and non-recurring items
that materially affect the Company's net income or loss and the
lack of comparability of results of operations to different
companies due to the different methods of calculating Consolidated
EBITDAX, or similarly titled measures, reported by different
companies. The Company is subject to financial covenants under the
Senior Secured Credit Facility, one of which establishes a maximum
permitted ratio of Net Debt, as defined in the Senior Secured
Credit Facility, to Consolidated EBITDAX. See Note 7 in the 2022
Annual Report for additional discussion of the financial covenants
under the Senior Secured Credit Facility. Additional information on
Consolidated EBITDAX can be found in the Company's Tenth Amendment
to the Senior Secured Credit Facility, as filed with the SEC on
November 3, 2022.
Investor Contact:Ron
Hagood918.858.5504ron.hagood@vitalenergy.com
Vital Energy (NYSE:VTLE)
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