Vital Energy has announced the signing of a definitive joint purchase and sale agreement to acquire the assets of Forge Energy II Delaware, LLC ("Forge"), an EnCap portfolio company, further expanding the Company’s Permian Basin focus and establishing a core operating position in the Delaware Basin.

The agreement was signed in partnership with a third party, with the companies jointly agreeing to acquire Forge’s assets in an all-cash transaction for total consideration of $540 million. Vital Energy agreed to acquire 70% of the assets for $378 million and will operate the asset, with the third party acquiring the remaining 30% for $162 million. Vital Energy plans to fund the acquisition through the use of its credit facility. The transaction is expected to close in late second-quarter 2023 with an effective date of March 1, 2023, subject to customary closing conditions.

"This accretive acquisition is attractively priced and significantly expands Vital Energy’s Permian focus, adding a core operating area in the Delaware Basin," stated Jason Pigott, President and Chief Executive Officer. "We have a proven track record of building value through our disciplined acquisition strategy. Today’s deal significantly enhances our outlook for Free Cash Flow generation which we will use to pay down debt and strengthen our balance sheet."

Highlights:

Expands Permian Basin focus: Transaction will expand Vital Energy’s Permian Basin leasehold to ~198,000 net acres and establish core operating positions in Pecos, Reeves and Ward counties. The Company has a track record of successfully integrating acquired assets and enhancing profitability through application of its proven processes and proprietary technologies.

Extends high-value, oil-weighted inventory: Transaction to add approximately 100 gross high-value oil locations in the 2nd and 3rd Bone Spring and Wolfcamp A with an average breakeven oil price of approximately $50 NYMEX WTI, with potential upside in additional stacked formations.

Increases scale: Adds nearly 42,000 gross acres (24,000 net) and current production of approximately 9.5 thousand barrels of oil equivalent per day, 65% oil, net to Vital Energy. The Company plans to operate one rig on the acquired properties, increasing the Company’s total Permian Basin rig count to three rigs.

Attractive acquisition price, immediately accretive, leverage neutral: Transaction valued at ~2.5x next 12 months Consolidated EBITDAX1 (based on strip pricing as of April 28, 2023), in line with recent transaction valuations in the basin and estimated to be 20% accretive to next 12 months Free Cash Flow1 and Free Cash Flow per share. The purchase is projected to be leverage neutral within 18 months at $75 NYMEX WTI.

Disciplined development: Upon closing, Vital Energy plans to operate one rig on the acquired leasehold, reduced from two rigs operated by the current owner. This disciplined approach will keep production levels on the asset relatively flat while maximizing Free Cash Flow. Additional details outlining development plans for the asset and impact to full-year 2023 guidance will be provided upon closing of the transaction.

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