Viper Energy increases Permian Basin Presence with $4.1 Billion Sitio Deal

Viper Energy has acquired Sitio Royalties, valued at $4.1 billion including debt. The companies announced this on Tuesday. This will increase the inventory and scale of Diamondback Energy's Permian basin unit.

Sitio shares rose 11.9% premarket to $19.38 following the announcement.

Dealmaking in the U.S. Oil Patch

The pace of change has slowed

Despite the low oil prices and uncertainty in the market, the Permian Basin is still a lucrative investment.

Permian Energy, a New Mexico-based energy firm, announced last month that it would acquire New Mexico Permian assets for 608 million dollars from APA Corp.

Diamondback uses Viper to acquire oil and gas properties in North America. The company is primarily focused on mineral and royalty rights in oil-weighted areas, such as the Permian basin.

Viper will gain 25,300 net royalties acres from the Sitio agreement in the Permian basin, as well as an additional 9,000 in other major basins.

Viper said that the base dividend breakeven will be reduced by approximately $2 per barrel.

Oil prices have fallen this year, causing producers in the United States to worry about affordability. Insiders claim that $56 per barrel is the break-even price, and that any drop below this level will affect production.

Viper and Sitio anticipate cost synergies of more than $50,000,000 per year, which are primarily due to savings in general and administrative costs as well as capital expenditures.

The third quarter is anticipated to be the closing date for this transaction. It includes Sitio’s net debt, which was approximately $1.1 billion at March 31.

Diamondback owns about 41% pro forma of Viper's outstanding share after closing. This was about 92% at the time Viper went public. Reporting by Tanay in Bengaluru, editing by Shrey Biswas

(source: Reuters)