Vital Energy has signed a definitive joint purchase and sale agreement to acquire the assets of Forge Energy II Delaware LLC, an EnCap portfolio company, in an all-cash deal for total consideration of $540 million. Vital Energy agreed to acquire 70% of the assets for $378 million and will operate the assets, with joint acquisition partner Northern Oil and Gas (NOG) acquiring the remaining 30% for $162 million.
Vital Energy, formerly Laredo Petroleum, plans to fund the acquisition using its credit facility. The transaction is expected to close in the second-quarter of 2023 with an effective date of 1 March 2023.
The acquisition covers producing and nonproducing acreage primarily in Ward and Reeves counties of Texas. The deal adds nearly 42,000 gross acres (24,000 net) and current production of approximately 9,500 BOE/D, 65% oil, net to Vital Energy. The company plans to operate one rig on the acquired properties, increasing the company’s total Permian Basin rig count to three rigs.
The operator of the assets will be Vital, with NOG participating in development via cooperation and joint operating agreements entered with Vital.
“This accretive acquisition is attractively priced and significantly expands Vital Energy’s Permian focus, adding a core operating area in the Delaware Basin," said Jason Pigott, president and chief executive. "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.”
The transaction will expand Vital Energy’s Permian leasehold to about 198,000 net acres and establish core operating positions in Pecos, Reeves, and Ward counties. The deal adds approximately 100 gross high-value oil locations in the 2nd and 3rd Bone Spring and Wolfcamp A with an average breakeven oil price of approximately WTI $50/bbl, with potential upside in additional stacked formations.
The deal marks the second Permian acquisition for Vital in 2023. In February, the company signed an agreement to acquire the assets of Driftwood Energy Operating, inclusive of all leasehold interests and hedges, in exchange for 1,578,948 shares of Vital common stock and $127.6 million of cash. The transaction had an effective date of 1 January 2023.
The Driftwood deal added approximately 16,500 gross (11,200 net) acres in Upton and Reagan counties and production volumes of around 5,400 BOE/D.
