CEO: Vital Energy Sees ‘A Lot More Opportunity’ for Permian M&A

Vital Energy’s desire to get oilier in America’s hottest oil basin has led the company to fuel nearly $2 billion in Permian M&A just this year.

When Jason Pigott took the helm as CEO at Vital in 2019—then operating as Laredo Petroleum Inc.—the company’s average daily production was about a third oil, a third natural gas and a third NGL, regulatory filings show.

The company has pumped billions of dollars into Permian acquisitions in both the Midland and Delaware Basins to grow its oil weighting since that time.

“We’ve had to be very aggressive over the last four years to change our stars,” Pigott said during Hart Energy’s A&D Strategies & Opportunities Conference in early October.

In September, Vital announced $1.165 billion in Permian M&A across three deals with private E&Ps. The acquisitions from Henry Energy LP, Tall City Exploration III and Maple Energy Holdings will add thousands of net acres and dozens of drilling locations in the Midland and Delaware basins.

The company’s three latest deals are expected to close in early November, Pigott said.

In April, Vital added Midland acreage through a $214 million acquisition of Driftwood Energy Operating LLC. In June, the company entered the Delaware Basin with a $378 million deal to acquire 70% of EnCap-backed Forge Energy II.

The result: “We’re now 50% oil by volume,” Pigott said.

“We want to be 55%, but all the transactions we’ve done have slowly increased our oil weighting over time.”

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Vital eyes more deals

In addition to growing the oil weighting of its production footprint, Vital  wants to deepen its drilling inventory for the future.

The deals with Henry, Tall City and Maple are adding 115 gross locations with an average breakeven WTI price of approximately $50/bbl.

At the company’s expected four-rig development cadence, Vital will have more than eight years of drilling inventory if the three deals close later this year as expected.

Despite extending its runway by adding incremental drilling locations, building inventory depth is “the hardest thing” for Vital to do, Pigott said.

“We went from eight years of inventory on two rigs, to eight years on three [rigs], to eight years on four,” he said.

Vital could tap the M&A market again to continue deepening its inventory and growing its oil production.

The competitive Midland Basin is “getting pretty rough” from an availability standpoint in Vital’s price range, Pigott said.

But Vital sees “a lot more opportunity” in the more fragmented southern Delaware Basin, where E&Ps including Permian Resources Corp., Continental Resources and Vitol-backed VTX Energy Partners have been active consolidators.

“The goal is to keep going,” Pigott said. “I think there are still plenty of good assets out there.”

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Permian M&A bonanza

E&Ps big and small are hunting for deals to allow greater drilling longevity in the Permian, the Lower 48’s top oil-producing region.

U.S. supermajor Exxon Mobil Corp. announced last week the king of all shale deals: an agreement to acquire Permian giant Pioneer Natural Resources in a transaction valued at nearly $60 billion. Including the assumption of Pioneer’s net debt, the approximate total enterprise value of the deal is around $64.5 billion.

With the blockbuster deal, Exxon is positioning itself as the global leader in the unconventional oil and gas space and adding more than a decade of premium drilling inventory in the core of the Midland Basin.

Experts say Exxon’s multibillion-dollar bet on the Permian could spur other majors or large independents to look at large-scale M&A of their own.

The Permian has seen a flurry of M&A activity this year—albeit on a relatively smaller scale than Exxon’s acquisition of Pioneer—as E&Ps jockey for running room.

Public companies including Permian Resources, Ovintiv, Civitas Resources, Callon Petroleum, Matador Resources and Diamondback Energy have pumped billions of dollars into Permian acquisitions in recent months.

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