ACQUISITIONS AND DIVESTITURES |
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Sep. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions And Divestitures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACQUISITIONS AND DIVESTITURES | ACQUISITIONS AND DIVESTITURES 2024 Activity Acquisitions Endeavor Acquisition For details on the Endeavor Acquisition, which closed on September 10, 2024, see Note 5—Endeavor Energy Resources, LP Acquisition. Viper Q Acquisition On September 3, 2024, Viper and Viper LLC acquired all of the issued and outstanding equity interests in Tumbleweed-Q Royalties, LLC (the “Viper Q Acquisition”), pursuant to a definitive purchase and sale agreement for consideration consisting of (i) approximately $114 million in cash, subject to transaction costs and customary post-closing adjustments, and (ii) contingent cash consideration of up to $5 million, payable in January of 2026, based on the average price of WTI sweet crude oil prompt month futures contracts for the calendar year 2025 (the “WTI 2025 Average”). The mineral and royalty interests acquired in the Viper Q Acquisition represent approximately 406 net royalty acres located primarily in the Permian Basin. The contingent cash consideration was recorded at its fair value of $3 million. Viper funded the cash consideration, and intends to fund any contingent cash consideration, for the Viper Q Acquisition through a combination of cash on hand and borrowings under the Viper LLC credit agreement. Viper M Acquisition On September 3, 2024, Viper and Viper LLC acquired all of the issued and outstanding equity interests in MC TWR Royalties, LP and MC TWR Intermediate, LLC (the “Viper M Acquisition” and, together with the Viper Q Acquisition, the “Viper Q&M Acquisitions”), pursuant to a definitive purchase and sale agreement for consideration consisting of (i) approximately $76 million in cash, subject to transaction costs and customary post-closing adjustments, and (ii) contingent cash consideration of up to $4 million, payable in January of 2026, based on the WTI 2025 Average. The mineral and royalty interests acquired in the Viper M Acquisition represent approximately 267 net royalty acres located primarily in the Permian Basin. The contingent cash consideration was recorded at its fair value of $2 million. Viper funded the cash consideration, and intends to fund any contingent cash consideration, for the Viper M Acquisition through a combination of cash on hand and borrowings under the Viper LLC credit agreement. See Note 14—Fair Value Measurements for further discussion of the fair value of the Viper Q&M Acquisitions contingent consideration liabilities (collectively, the “2026 WTI Contingent Liability”). Divestitures WTG Midstream Transaction The Company owns a 25% non-operating equity investment in Remuda Midstream Holdings LLC, referred to as the “WTG joint venture”. On July 15, 2024, the WTG joint venture sold its WTG Midstream LLC subsidiary (the “WTG Midstream Transaction”), for which the Company received as its portion of the consideration 10.1 million common units issued by Energy Transfer LP (NYSE: ET) and $190 million in cash, subject to customary post-closing adjustments. The common unit consideration is also subject to preferred distributions to incentive members of the WTG joint venture which reduce the proceeds attributable to the Company. At the closing of the WTG Midstream Transaction, the value attributable to the Company of the 10.1 million common units was approximately $135 million, of which approximately $81 million was received by the Company and $54 million was held in escrow pursuant to an escrow agreement entered into by the WTG joint venture in connection with the initial transaction. The total value of distributions received by the Company through September 30, 2024 of $271 million (excluding amounts held in escrow) exceeded the carrying value of the Company’s investment balance in the WTG joint venture, resulting in a gain of approximately $76 million, which is included in the caption “Other income (expense), net” in the condensed consolidated statement of operations for the three and nine months ended September 30, 2024. 2023 Activity Acquisitions GRP Acquisition On November 1, 2023, Viper and Viper LLC acquired certain mineral and royalty interests from Royalty Asset Holdings, LP, Royalty Asset Holdings II, LP and Saxum Asset Holdings, LP and affiliates of Warwick Capital Partners and GRP Energy Capital (collectively, “GRP”), pursuant to a definitive purchase and sale agreement for approximately 9.02 million Viper common units and $748 million in cash, including transaction costs and customary post-closing adjustments (the “GRP Acquisition”). The mineral and royalty interests acquired in the GRP Acquisition represent 4,600 net royalty acres in the Permian Basin, plus an additional 2,700 net royalty acres in other major basins. The cash consideration for the GRP Acquisition was funded through a combination of cash on hand and held in escrow, borrowings under the Viper LLC credit agreement, proceeds from Viper’s offering of $400 million in aggregate principal amount of its 7.375% Senior Notes due in 2031 and proceeds from the $200 million common unit issuance to the Company. Lario Acquisition On January 31, 2023, the Company closed on its acquisition of all leasehold interests and related assets of Lario Permian, LLC, a wholly owned subsidiary of Lario Oil and Gas Company, and certain associated sellers (collectively “Lario”). The acquisition included approximately 25,000 gross (16,000 net) acres in the Midland Basin and certain related oil and gas assets (the “Lario Acquisition”), in exchange for 4.33 million shares of the Company’s common stock and $814 million in cash, including certain customary post-closing adjustments. Approximately $113 million of the cash consideration was deposited in an indemnity holdback escrow account at closing and was distributed upon satisfactory settlement of any potential title defects on the acquired properties during the first quarter of 2024. The cash consideration for the Lario Acquisition was funded through a combination of cash on hand, a portion of the net proceeds from the Company’s offering of 6.250% Senior Notes due 2053 and borrowings under the Company’s revolving credit facility. The following table presents the acquisition consideration paid in the Lario Acquisition (in millions, except per share data, shares in thousands):
Purchase Price Allocation The Lario Acquisition has been accounted for as a business combination using the acquisition method. The following table represents the allocation of the total purchase price paid in the Lario Acquisition to the identifiable assets acquired and the liabilities assumed based on the fair values at the acquisition date. The purchase price allocation was completed in December 2023. The following table sets forth the Company’s purchase price allocation (in millions):
Oil and natural gas properties were valued using an income approach utilizing the discounted cash flow method, which takes into account production forecasts, projected commodity prices and pricing differentials, and estimates of future capital and operating costs which were then discounted utilizing an estimated weighted-average cost of capital for industry market participants. The fair value of acquired midstream assets, vehicles and a field office were based on the cost approach, which utilized asset listings and cost records with consideration for the reported age, condition, utilization and economic support of the assets and were included in the Company’s condensed consolidated balance sheets under the caption “Other property, equipment and land.” The majority of the measurements of assets acquired and liabilities assumed are based on inputs that are not observable in the market and are therefore considered Level 3 inputs in the fair value hierarchy. With the completion of the Lario Acquisition, the Company acquired proved properties of $924 million and unproved properties of $536 million. Divestitures Divestiture of Deep Blue Water Assets and Deep Blue Formation On September 1, 2023, the Company closed on a joint venture agreement with Five Point Energy LLC (“Five Point”) to form Deep Blue Midland Basin LLC (“Deep Blue”). At closing, the Company contributed certain treated water, fresh water and saltwater disposal assets (the “Deep Blue Water Assets”) with a net carrying value of $703 million, including certain post-closing adjustments, and Five Point contributed $251 million in cash to Deep Blue. In exchange for these contributions, Deep Blue issued the Company a one-time cash distribution of approximately $516 million and issued to the Company a 30% equity ownership and voting interest, and issued to Five Point a 70% equity ownership and voting interest. Additionally, under a separate agreement with Deep Blue, the Company continued to operate the Deep Blue Water Assets on a short-term basis. Five Point agreed to pay the Company approximately $47 million upon the successful transfer of operations to Deep Blue and the Company recorded approximately $43 million as a contingent consideration receivable on the closing date based on the assessed probability of earning the additional consideration. Upon the successful transfer of operations in June 2024, the Company received the full contingent consideration amount of $47 million. The Company recorded its 30% equity interest in Deep Blue at fair value based on the cash consideration and contingent consideration contributed by Five Point to Deep Blue in exchange for its 70% equity ownership. The Company’s equity method investment in Deep Blue had an initial fair value of $126 million. The Company’s proportionate share of the income or loss from Deep Blue is recognized on a two-month lag. The Company has recognized an aggregate $13 million loss on the sale of its Deep Blue Water Assets, of which approximately $1 million was recognized during the nine months ended September 30, 2024. The loss on the sale of Deep Blue Water Assets is included in the caption “Other operating expenses” in the condensed consolidated statement of operations. The majority of measurements utilized to determine the fair value amounts reported above relating to this transaction are based on inputs that are not observable in the market and are therefore considered Level 3 inputs in the fair value hierarchy. The Company and Five Point currently anticipate collectively contributing $500 million in follow-on capital to fund future growth projects and acquisitions. As part of the transaction, the Company also entered into a 15-year dedication with Deep Blue for its produced water and supply water within a 12-county area of mutual interest in the Midland Basin. See Note 8—Related Party Transactions for further discussion of transactions with Deep Blue. OMOG Divestiture On July 28, 2023, the Company divested its 43% limited liability company interest in OMOG JV LLC (“OMOG”) for $225 million in cash received at closing. This divestiture resulted in a gain on the sale of equity method investments of approximately $35 million, which is included in the caption “Other income (expense), net” on the condensed consolidated statements of operations for the three and nine months ended September 30, 2023. The Company used its net proceeds from this transaction for debt reduction and other general corporate purposes. Non-Core Assets Divestiture On April 28, 2023, the Company divested non-core assets to an unrelated third-party buyer consisting of approximately 19,000 net acres in Glasscock County, TX for net cash proceeds at closing of $269 million, including customary post-closing adjustments. The Company used its net proceeds from this transaction for debt reduction and other general corporate purposes. On March 31, 2023, the Company divested non-core assets consisting of approximately 4,900 net acres in Ward and Winkler counties to unrelated third-party buyers for $72 million in net cash proceeds, including customary post-closing adjustments. The divestitures of non-core oil and gas assets did not result in a significant alteration of the relationship between the Company’s capitalized costs and proved reserves and, accordingly, the Company recorded the proceeds as a reduction of its full cost pool with no gain or loss recognized on the sales. Gray Oak Divestiture On January 9, 2023, the Company divested its 10% non-operating equity investment in Gray Oak Pipeline, LLC (“Gray Oak”) for $172 million in net cash proceeds and recorded a gain on the sale of equity method investments of approximately $53 million, which is included in the caption “Other income (expense), net” on the condensed consolidated statements of operations for the three and nine months ended September 30, 2023.
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