Crescent Energy to Acquire Vital Energy in a Deal Worth $3.1 Billion

Crescent Energy Company CRGY, an independent oil and gas company, announced that it has entered into an agreement to acquire Vital Energy, Inc. VTLE in an all-stock transaction valued at $3.1 billion, including Vital’s net debt. The acquisition expands Crescent Energy’s access to key oil and gas producing basins in the United States. Notably, CRGY will gain a significant acreage position in the Permian Basin of Texas and New Mexico.

Deal Terms and Shareholder Impact

Per the terms of the agreement, Vital Energy shareholders will receive 1.9062 shares of Crescent Class A common stock for every share of Vital common stock they own. This deal is anticipated to deliver strong returns for all shareholders and generate $90-$100 million in annual synergies. The company also mentioned that the combined entity will be led by a management team having extensive operating and investing knowledge. This should ensure increased value creation for all stakeholders and long-term growth for the combined company.

Free Cash Flow-Focused Operating Strategy

Crescent Energy plans to follow its strategy focused on lower drilling activity, prioritizing higher free cash flow generation. This should enable the company to improve shareholder returns and support higher dividends. Furthermore, CRGY  plans to execute a pipeline of non-core asset divestitures worth $1 billion, aimed at improving its balance sheet position. The acquisition shall allow CRGY to consolidate a strong asset base in the prolific Eagle Ford, Permian and Uinta Basins of the United States with more than 10 years of high-quality inventory in the region.

Future Strategic Focus

The acquisition is anticipated to be completed by year-end 2025, subject to customary closing conditions. After the merger, Crescent shareholders are expected to hold about 77% of the combined company, while Vital shareholders will own the remaining 23%. The combination of the two companies enables Crescent Energy to gain access to premium shale basins in the U.S. that support low-cost production. Per Reuters, following the merger, CRGY’s primary focus will be on assets in the Eagle Ford, Permian and Uinta Basins for production. This suggests that the company may consider divesting other assets outside these basins.

Zacks Rank & Key Picks

Currently, CRGY and VTLE each carry a Zacks Rank #3 (Hold).

Some better-ranked stocks from the energy sector are Enbridge Inc. ENB and Galp Energia SGPS SA GLPEY, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

Enbridge is a leading midstream energy firm that operates an extensive crude oil and liquids transportation network spanning 18,085 miles, along with a gas transportation network covering 71,308 miles. The company has a stable business model supported by take-or-pay contracts, protecting it against commodity price volatility.

Galp Energia is a Portuguese energy company engaged in exploration and production activities. The company’s oil exploration efforts have yielded positive results, particularly the Mopane discovery in the Orange Basin, offshore Namibia. After the initial exploration phase, Galp estimated that the Mopane prospect could hold nearly 10 billion barrels of oil. This discovery allows Galp to diversify its global presence, with the potential to become a significant oil producer in the region.

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This article originally published on Zacks Investment Research (zacks.com).

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