Minerals firm Sitio Royalties Corp. is boosting its position in the Permian Basin with a pair of acquisitions that is expected to increase net production by 23%.
Sitio, the company formed when Desert Peak Minerals and Falcon Minerals Corp. Completed their merger this year, said late last month that it acquired more than 19,700 net royalty (NRA) for around $323 million from Foundation Minerals LLC, a Midland-based portfolio company of Quantum Energy Partners.
Sitio also signed a definitive agreement to buy more than 12,200 net royalty acres from Momentum Minerals, which is backed by investor Apollo Global Management. The Permian assets sold for around $224 million in a deal expected to close in the third quarter of 2022.
Together, the two transactions are expected to provide Sitio with net production of 3,500 boe/d, weighted 51% oil and 26% natural gas liquids, in the second half of 2022. This would boost its total production by 23%. Specifically, the deals expand Sitio’s footprint in Eddy, Lea, Loving, Martin and Midland counties by about 13,200 NRAs, or about 160%.
“We expect our shareholders to significantly benefit from efficiencies due to the increased scale of the company and a substantial increase to our dividend,” Sitio CEO Chris Conoscenti said.
The recent acquisitions are the latest in a series of transactions in excess of 10,000 NRAs since June of 2021, which further cements Sitio’s position as the “top consolidator in the space,” according to Conoscenti.
Formed in early June, Sitio has hit the ground running in its pursuit of large-scale consolidation of high-quality mineral and royalty interests across diversified exploration and production operators. The Foundation and Momentum transactions are the fourth and fifth of more than 10,000 acres apiece by Sitio and its predecessors since June 2021.
“We believe that the mineral and royalty sector is ripe for consolidation and are proud to announce these highly accretive acquisitions soon after the Falcon Minerals merger and rebranding the company to Sitio,” said Noam Lockshin, Sitio board chairman. “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 remaining substantial inventory.”
Operators on the Foundation and Momentum acreage include Coterra Energy Inc., Colgate Energy LLC, ConocoPhillips, Devon Energy Corp., ExxonMobil, Occidental Petroleum Corp. and Pioneer Natural Resources Co. The acquisition is accretive to shareholders by about 15% on a cash flow per share basis, Sitio said.
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In addition, assuming the company’s existing 65% dividend payout ratio, the acquired assets are expected to add about 15% to Sitio’s 2H2022 dividends per share at the current commodity strip pricing. The assets will also bring down general and administrative expenses per boe by 14% to $2.31 at the midpoint.
Ahead of the merger, Desert Peak, originally created by private equity giant Kimmeridge Energy Management Co. LLC, controlled more than 105,000000 net royalty (NRA) in the Permian through 175-plus acquisitions. Falcon was created in 2018 as an umbrella partnership C corporation, or Up-C, with stakes in 21,000-plus NRAs in the Austin Chalk formation and Eagle Ford Shale, as well as more than 12,000 in the Marcellus Shale.