Sitio and Brigham Announce $4.8B Merger

Sitio Royalties Corp. (NYSE: STR) and Brigham Minerals, Inc. (NYSE: MNRL) have announced in a joint statement that they have entered into a definitive agreement to combine in an all-stock merger.

The deal is said to have an aggregate enterprise value of approximately $4.8 billion, based on the closing share prices of STR and MNRL on September 2, 2022. The combination brings together two of the largest public companies in the oil and gas mineral and royalty sector with complementary high-quality assets in the Permian Basin and other oil-focused regions, the joint statement noted.

Under the terms of the deal, Brigham shareholders will receive a fixed exchange ratio of 1.133 shares of common stock in the combined company for each share of Brigham common stock owned on the closing date, and Sitio’s shareholders will receive one share of common stock in the combined company for each share of Sitio common stock owned on the closing date. Brigham’s and Sitio’s Class A shareholders will receive shares of Class A common stock in the combined business, and Brigham’s Class B and Sitio’s Class C shareholders will receive shares of Class C common stock in the combined business as merger consideration, the joint statement outlined.

The transaction has been unanimously approved by the boards of directors of both companies and funds managed by Kimmeridge, Blackstone and Oaktree - which own 43.5 percent, 24.8 percent and 15.4 percent of the outstanding shares of Sitio, respectively - are said to have entered into support agreements to vote in favor of the transaction.

Upon completion of the transaction, Sitio shareholders will own approximately 54.0 percent and Brigham shareholders will own approximately 46.0 percent of the combined entity on a fully diluted basis. The closing of the merger is expected to occur in the first quarter of 2023 and is subject to customary closing conditions, including regulatory clearance and approvals by the shareholders of Sitio and Brigham.

Chris Conoscenti, the CEO of Sitio, said, “our merger with Brigham Minerals brings together two complementary businesses that are aligned in every key way, and further advances the business plan that Sitio outlined earlier in the year following the merger of Sitio’s predecessor companies”.

“Both companies are focused on asset quality, maintain disciplined acquisition underwriting standards, understand the benefits of scale, and prioritize shareholder alignment in our approaches to capital allocation and best-in-class governance,” he added.

“We have been particularly impressed with the asset portfolio that the Brigham team has built and their track record of delivering consistent results every quarter since they became public … We believe that achieving material scale in this industry is critical to creating sustained value for our stakeholders and distinguishing Sitio from others, which is why we have been so focused on employing a differentiated, large-scale consolidation strategy,” he continued.

“Our combined company will be the largest publicly traded mineral and royalty company in the U.S. by enterprise value that is focused on consolidation across a diverse set of operators and geographies. We will be able to pursue opportunities that few others can because of the size of our business, strength of our balance sheet, optimized cost structure and access to capital,” Conoscenti went on to say.

Also commenting on the deal, Robert M. Roosa, the CEO of Brigham, said, “I’m extremely proud of the Brigham team’s incredible efforts over the past 10 years to assemble an outstanding portfolio of diversified mineral interests across four of the highest quality oil weighted basins under high performing, active operators”.

“Our merger with Sitio creates the industry leading powerhouse in the minerals space with over 30 percent coverage in the Permian Basin, approximately 100 rigs running across all of our operating basins and greater than 50 activity wells to continue to drive production and cash flow growth,” he added.

“We believe the merger is the logical next step in the continued evolution of the minerals space and creates an entity of scale with ever improving liquidity and float, as well as a streamlined cost structure that further reinforces the scalability of our industry,” he continued.

“Overall, I could not be more excited about the future prospects of the combined company to continue to focus on creating value for shareholders through mineral consolidation,” Roosa concluded.

Change From The Trend

Following news of the Sitio-Brigham deal, Enverus Director Andrew Dittmar outlined in a statement sent to Rigzone that the transaction marked a change from a recent trend.

“In the relatively small world of publicly traded mineral companies, the trend has been towards more publicly traded options as new companies have listed over the last five years and the public company consolidation that has been a feature of the operating side of the business has been absent,” Dittmar said.

“That changed today with the merger of equals between Sitio Royalties and Brigham Minerals to form a $4.8 billion pro-forma enterprise value company with a 260,000 net royalty acre position with 70 percent located in the prolific Permian Basin. The merger ties together two companies that have similar positioning in the market in terms of yields, growth prospects from untapped inventory, and outlook on M&A,” he added.

For companies on the mineral and royalty side of the upstream business, which receive payments for oil and gas production on their land but don’t pay costs to develop it, there has been less pressure to consolidate since they tend to already have low overhead costs and the need for operational synergies for development isn’t the same as other E&Ps, Dittmar noted. However, there are still benefits from having a larger presence in public markets as these companies look to reach out beyond the investors focused on this niche space to a broader audience, he said.

“In this deal, Sitio touts that the combination with Brigham will increase its public float by 5.8x to $1.9 billion. Additionally, even with low costs the companies still say they expect to realize cash G&A savings of ~$15 million per year with a reduction in 2Q22 pro forma cash G&A per boe by 19 percent for Sitio,” Dittmar stated.

“For its part Brigham, which is substantially focused on the Permian Basin but owns royalties across several plays, will significantly increase the share of Permian exposure in its asset base. Longer term as other plays continue to mature and inventory dwindles, exposure to the Permian will be key for royalty companies to maintain a of pipeline of wells to be developed on their land,” he added.

While public company mergers may be rare, smaller scale M&A is fundamental to the minerals and royalty space, Dittmar highlighted.

“Since these companies don’t control the pace or scale of development on their properties, making acquisition is how they can drive production and cash flow growth to feed investor distributions,” he said.

“Sitio and Brigham were both active buyers in the Permian this summer and poised to compete against one another for the most desirable land. Now, the erstwhile competitors will have a larger and more liquid platform to continue to roll up highly fragmented royalty ownership,” he added.

To contact the author, email andreas.exarheas@rigzone.com