Newly formed Sitio seizes Permian acreage and increases production with two acquisitions

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The mining company Sitio Royalties Corp. strengthens its position in the Permian Basin with a pair of acquisitions expected to increase net production by 23%.

Sitio, the company created when Desert Peak Minerals and Falcon Minerals Corp. completed their merger this year, said late last month that it had acquired more than 19,700 net royalty acres (NRA) for about $323 million from Foundation Minerals LLC, a Midland-based portfolio company. Quantum Energy Partners company.

Sitio has also signed a definitive agreement to purchase more than 12,200 net royalty acres from Momentum Minerals, which is backed by investor Apollo Global Management. The Permian assets were sold for approximately $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 at 51% oil and 26% natural gas liquids, in the second half of 2022. This would increase its total production by 23%. Specifically, the agreements expand Sitio’s footprint in Eddy, Lea, Loving, Martin and Midland counties by approximately 13,200 RNAs, or approximately 160%.

“We expect our shareholders to benefit significantly from the efficiencies due to the increased size of the business and a substantial increase in our dividend,” said Sitio CEO Chris Conoscenti.

The recent acquisitions are the latest in a series of deals of more than 10,000 RNAs since June 2021, further cementing Sitio’s position as the “top consolidator in the space”, according to Conoscenti.

Formed in early June, Sitio has taken the lead in its pursuit of large-scale consolidation of high-quality mining and royalty interests among diversified exploration and production operators. The Foundation and Momentum transactions are the fourth and fifth of more than 10,000 net acres each by Sitio and its predecessors since June 2021.

“We believe the minerals and royalties industry is ripe for consolidation and are proud to announce these highly accretive acquisitions shortly after the Falcon Minerals merger is complete and the company is rebranded to Sitio,” said said Noam Lockshin, Chairman of Sitio’s Board of Directors. “The acquired assets are in highly desirable areas of the Permian Basin, which significantly increases our focus on strong near-term production growth and provides substantial remaining 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 cash flow per share, Sitio said.

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Additionally, assuming the company’s existing 65% dividend payout ratio, the acquired assets are expected to add approximately 15% to Sitio’s dividends per share in 2H2022 at the current price of commodity bands. The assets will also reduce general and administrative costs per boe by 14% to $2.31 at the midpoint.

Prior to the merger, Desert Peak, originally created by private equity giant Kimmeridge Energy Management Co. LLC, controlled more than 105,0000 net royalty acres (NRA) in the Permian through more than 175 acquisitions. Falcon was established in 2018 as an umbrella partnership C, or Up-C, with interests in over 21,000 NRAs in the Austin Chalk and Eagle Ford Shale formation, as well as over 12,000 in Marcellus Shale.


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