Sitio Royalties Corp. (STR) ("Sitio") announced that it has completed the acquisition of over 19,700 net royalty acres ("NRAs") in the Permian Basin from Foundation Minerals, a portfolio company of Quantum Energy Partners based in Midland, for approximately $323 million (the "Foundation Acquisition"), and that it has also entered into a definitive purchase and sale agreement to purchase over 12,200 NRAs in the Permian Basin from Momentum Minerals. The Foundation Acquisition was funded utilizing borrowings under the Company’s credit facility and proceeds from a 364-day unsecured bridge loan facility, and the Momentum Acquisition is expected to be funded utilizing debt financing and close in the third quarter of 2022, subject to customary closing conditions.
In conjunction with the Acquisitions and consistent with the Company’s strategy of protecting returns in times of above mid-cycle pricing, Sitio also entered into crude oil and natural gas derivative contracts to enhance the certainty of cash flows and protect against adverse commodity price fluctuations.
- Continuation of Sitio’s strategy of consolidation of large-scale, high-quality mineral and royalty positions
- Accretive to shareholders by approximately 15% on a cash flow per share basis
- Expected to add approximately 15% to the Company’s second half 2022 dividends per share at current commodity strip pricing, assuming a 65% dividend payout ratio per Sitio’s previously announced capital allocation framework as compared to the Company’s second half 2022 dividends per share had the Acquisitions not been consummated
- Cash G&A per barrel of oil equivalent (“boe”) expected to decrease by approximately 14% to $2.31 from pro forma 1Q 2022 to the second half of 2022 based on the midpoint of guidance range
- Increases expected second half 2022 production by approximately 3,500 boe/d and increases net line of sight inventory wells1 by more than 30%
- Represents fourth and fifth transactions in excess of 10,000 NRAs closed or signed since June of 2021, during which time the Company has grown its acreage position more than 300%, acquiring over 100,000 NRAs
- Increases acreage 24,500 NRAs in the Delaware Basin and approximately 7,400 NRAs in the Midland Basin, resulting in a 30% increase in Sitio’s Permian Basin assets and a 22% increase in Sitio’s total acreage to more than 173,000 NRAs
- Expands footprint in Eddy, Lea, Loving, Martin and Midland counties by approximately 13,200 NRAs, or approximately 160%
- Provides exposure to a diversified set of high-quality and active operators, including Coterra Energy, Colgate Energy, ConocoPhillips, Devon Energy, ExxonMobil, Occidental Petroleum and Pioneer Natural Resources
- Pro forma leverage upon closing of both Acquisitions expected to be approximately 1.5x; STR expects pro forma leverage to return to 1.0x or less by year-end 2023 based on current strip pricing for oil and gas
Chris Conoscenti, Chief Executive Officer of Sitio, commented, “We are excited to announce these highly accretive acquisitions in the Permian Basin and continued execution of our returns-focused, large-scale mineral and royalty consolidation strategy. We expect our shareholders to significantly benefit from efficiencies due to the increased scale of the Company and a substantial increase to our dividend. These acquisitions are the latest in a series of transactions in excess of 10,000 NRAs since June of 2021, building on our track record of executing value-additive M&A and further cementing our position as the top consolidator in the space.”
Noam Lockshin, Chairman of the Sitio Board of Directors, said, “We believe that the mineral and royalty sector is ripe for consolidation and are proud to announce these highly accretive acquisitions soon after completing the Falcon Minerals merger and rebranding the Company to Sitio. The acquired assets are in highly valued areas of the Permian Basin, meaningfully increasing our line of sight to strong production growth in the near-term and providing substantial remaining inventory.”
SECOND HALF 2022 FINANCIAL AND OPERATIONAL GUIDANCE
In connection with the acquisitions, Sitio is providing operational and financial guidance for the second half of 2022.
- Before incorporating the Acquisitions into 2H 2022 guidance, the Company expects 2H 2022 production volumes to increase by approximately 7% at the midpoint compared to previous guidance for 1H 2022 issued in January 2022.
- Below is operational and financial guidance for the Company after giving effect to the Acquisitions:
Sitio entered into derivative contracts in connection with each cash acquisition beginning in the second quarter of 2022. The company’s oil and gas derivatives as of June 27, 2022 are summarized.