Another Wave of Consolidation Hits the Permian Basin as Mid-Tier Producers Seek Scale 

The consolidation wave sweeping through America's most prolific oil field shows no signs of slowing. At the beginning of this month, we benchmarked Civitas assets after news that they are exploring a sale, and last week, Bloomberg announced Civitas Resources and SM Energy are exploring a potential merger that would create a combined entity valued at approximately $14 billion, positioning the companies as one of the largest independent shale producers in the US. The discussions between Denver-based Civitas Resources and SM Energy come at a crucial moment for the Permian Basin, where major merger activity has dominated headlines over the past few years and premium acreage is becoming more difficult and harder to come by. According to sources familiar with the matter, the potential transaction would be structured as a merger of equals without a takeover premium, suggesting both companies see mutual strategic value in combining forces. This week, we will use TGS Well Data Analytics to evaluate the merger results and compare operational practices between Civitas Resources and SM Energy. The analysis will highlight key synergy opportunities, including completion design differences in the Midland Basin, where Civitas uses 2,000 lbs of proppant per lateral foot and achieves higher type curve performance compared to SM Energy's 2,800 lbs per lateral foot.

Investor presentations show that Civitas Resources operates across 141,000 net acres in the Permian Basin, with an additional 357,000 net acres in the DJ Basin. SM Energy controls 109,000 acres concentrated in the prolific Midland Basin portion of the Permian. Beyond Texas, SM Energy's portfolio includes 155,000 net acres in the Eagle Ford and 63,700 net acres in the Uinta Basin. The combined acreage would give the merged entity a substantial footprint of 250,000 net acres in the Permian, primarily in the Midland Basin, and an additional 575,000 net acres across other shale plays, providing operational scale and geographic diversification that both companies lack individually. Together, Civitas and SM Energy would boast a production of 650,000 – 700,000 boe/d, primarily coming from the Midland Basin, as seen in Figure 1, where both companies are top 10 producers by boe, and from the DJ Basin, where Civitas is the 2nd highest producer by boe, as covered in our previous article.

Figure 2 highlights each company’s completion and performance metrics in the Midland Basin and shows that both operators produce roughly 130,000 boe/d from the basin with similar production per foot. While type curves overlap initially, Civitas maintains higher production beyond 100 months and can do so using less proppant per foot than SM Energy. Despite less proppant per foot, Civitas well costs for the area stand at $685/ft, as reported in their second quarter financial and operating results, while SM Energy well costs are roughly $600/ft, calculated from their second quarter public figures. These differences in well performance and costs highlight opportunities for operational synergies. SM Energy's lower cost structure could potentially be applied to Civitas’s operations, while Civitas's ability to achieve stronger long-term production with lower proppant intensity suggests completion optimization techniques that could benefit SM Energy's development program.

The merger would allow both companies to share best practices and potentially increase the combined entity's capital efficiency metrics. Whether this particular transaction reaches completion remains uncertain, but the strategic logic of scale-building in the current environment suggests more mid-tier combinations are likely ahead. For investors and industry observers, the key will be watching how the combined operational practices and cost structures translate into shareholder returns and competitive positioning in an increasingly concentrated market.

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Figure 1. Merged Entity Production and Type Curve plots (Totals, by Operator, and by Basin) 

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Figure 2. Comparing Civitas Resources and SM Energy in the Midland Basin 


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