FORT WORTH, Texas—VTX Energy Partners is looking to grow its position in the southern Delaware Basin after closing a “transformational” acquisition earlier this year, CEO Gene Shepherd said.
VTX, backed by Swiss energy trader Vitol, scooped up 35,000 net leasehold acres in Reeves and Pecos counties, Texas, in a deal with Delaware Basin Resources (Delaware Basin Investment Group).
The company acquired the same Red Bull property that the late T. Boone Pickens described as the biggest prospect in which he’d ever invested.
When the deal closed in March, the acquired assets included production of around 32,000 barrels of oil equivalent per day (boe/d), Shepherd said during Hart Energy’s Super DUG conference in Fort Worth.
The transaction included a significant undeveloped component with more than 200 future drilling locations at closing, as well as associated water and surface businesses, the company said.
Shepherd, the former president and CEO of Brigham Resources LLC, said the Red Bull property also shares a lease line with the Brigham position that sold to Diamondback Energy for $2.4 billion in 2017.
“The fact that we had drilled 57 horizontal wells immediately east of [Delaware Basin Investment Group] – and collaborated a lot over the years with DBIG in 2015 and ’16 – made us a much more efficient operator,” Shepherd said.
There were four drilling rigs operating on the asset at the time of the acquisition; VTX later dropped to a three-rig drilling program.
“We’re not sure about the level of drilling activity at a minimum two rigs. We might stick with three rigs – that’s sort of up in the air,” Shepherd said. “But our plans are, over time, to attempt to grow the position.”
RELATED
Vitol’s VTX Energy Partners Completes Southern Delaware Basin Deal
Southern Delaware consolidation
The southern Delaware Basin is more fragmented compared to the Permian’s Midland Basin, or even the northern portion of the Delaware.
“In the southern Delaware, there’s not a real logical consolidator at present,” he said.
Continental Resources entered the area in 2021 through a $3.1 billion acquisition of Pioneer Natural Resources’ entire Delaware position.
Permian Resources Corp., formed about a year ago through the merger of Colgate Energy Partners II LLC and Centennial Resource Development Inc., has also been actively pursuing deals in the southern Delaware.
But VTX also sees opportunity in being a consolidator in the region as the company works to grow its position.
VTX’s acquisition of the Red Bull property included undeveloped inventory but was more heavily weighted toward PDP. As the company evaluates future M&A in the southern Delaware, VTX aims to capture additional incremental undeveloped acreage, Shepherd said in an interview.
“To the extent we don’t get traction in the southern Delaware late this year or early next year, we may start looking at some alternative basins,” he said.
The company spent a lot of time last year working a pipeline of potential natural gas-focused opportunities. The company looked at several different plays, including the Piceance Basin and the Marcellus, Utica and Eagle Ford shales.
But Vitol pulled back on a gas deal amid concerns for near-term gas prices. With U.S. natural gas prices down significantly since last summer, that turned out to be the right call, Shepherd said.
Henry Hub natural gas prices are forecast to average $2.91/MMBtu in 2023, down more than 50% from an average of $6.42/MMBtu in 2022, according to the latest estimates from the Energy Information Administration.
“I think I wouldn’t be describing a gas transaction we did last year as foundational the way that the DBIG transaction is for us this year,” Shepherd said.
RELATED
Double Eagle Expands in Permian, Eyes Fifth Rig in July
Vitol backing
It was helpful for VTX to have the backing of Vitol when working through the competitive acquisition process, Shepherd said.
Capital formation has emerged as a key issue challenging the oil and gas M&A environment. Vitol’s ability to finance an all-cash acquisition of the Red Bull play was a differentiator in getting the deal across the finish line, he said.
“There is not a long list of all-cash buyers like Vitol,” Shepherd said. “They’re somewhat unique.”
While financial terms of the acquisition were not disclosed, a unit of Blackstone Inc. was reportedly looking to sell the DBIG assets for close to $2 billion including debt.
The southern Delaware transaction was likely in the range of $1.5 billion to $2 billion, according to data from Enverus.
As VTX scours the southern Delaware to grow its position, the plan is to put together more cash deals in the future.
Another Vitol-backed Permian E&P, Vencer Energy LLC, made a splashy debut in 2021 by acquiring Hunt Oil Co.’s position in the Midland Basin.
RELATED
Blackstone Explores Sale of Patriot Resources in Permian Basin, Sources Say
Recommended Reading
Exclusive: Adkins on Challenged Gas Prices, Growing Crude Demand
2024-05-15 - J. Marshall Adkins, head of energy investment banking at Raymond James, details the future of natural gas prices and misconceptions about crude demand coming to an end in this Hart Energy Exclusive interview.
CoolCo, GAIL Enter Long-term LNG Agreement
2024-05-16 - CoolCo and GAIL’s agreement is intended to secure long-term LNG supply in India’s market, with GAIL having an option to extend the 14-year agreement by another two years.
ConocoPhillips Looks to Scale Portfolio, But Citgo Auction Not a Factor
2024-05-15 - ConocoPhillips has a long-term ambition to boost its LNG offtake capacity to between 10 mtpa to 15 mtpa as it keeps a short-term eye on the auction of Citgo Petroleum.
Linde Doubles Production Capacity at Gulf Coast Facility
2024-05-14 - Linde’s expansion of the production capacity at its air separation facility in La Porte, Texas, will help meet growing demand for industrial gases in the area.
Gas Prices in a Summer of Discontent
2024-05-14 - In February, natural gas prices dropped below $2/MMBtu and stayed there. How is the market handling it, and when will the price pick back up?