Royalty and mineral oil companies Sitio and Brigham to merge in $4 billion tie-up

Sitio and Brigham, like the rest of the industry, have both made soaring profits in recent months as a result of rising oil prices. By combining the two companies, the new entity could achieve economies of scale and become a leader in the mineral rights industry, the companies said.

“The mineral and royalty space benefits from scale unlike other companies in the energy value chain,” said Sitio Chief Executive Officer Chris Conoscenti in an interview Monday.

After the deal was announced, shares of Sitio fell about 2% in morning trading to $24.71. Brigham’s stock fell 3.54% to $28.36.

Mineral owners take home some of the oil and gas pumped onto their land in the form of royalty payments, often 12.5% ​​to 20% of the value of the fuel. They can’t control the pace of development, but neither are they lurking for drilling or overhead costs, and they are reaping the benefits of high commodity prices.

Following the deal, Noam Lockshin, a partner at private equity firm Kimmeridge Energy Management, which currently owns 43.2% of Sitio’s outstanding shares, would become chairman of the new company, the companies said. Mr. Lockshin is currently chairman of Sitio. Mr. Conoscenti will serve as CEO of the combined company, which will be based in Denver and will operate under the name Sitio.

The all-share deal is expected to close in the first quarter of 2023, according to the companies. Under the terms of the deal, Sitio’s shareholders will own approximately 54% of the company, while Brigham’s will own the remaining 46%, the companies said.

Both Sitio and Brigham have pursued a consolidation strategy in the oil-rich Permian basin of western Texas and New Mexico, making significant acquisitions this year.

Sitio was formed following the merger of Desert Peak Minerals Inc., which is owned by Kimmeridge, and Blackstone Inc.

backed Falcon Minerals Corp. earlier this year.

Brigham has announced mineral and royalty interest agreements in the region worth approximately $150 million so far this year. Sitio, meanwhile, bought more than 40,000 net royalty acres in the Permian in the second and third quarters of the year, the company told investors last month, including an acquisition of about $323 million in June.

The newly formed company would have stakes in more than 34% of all wells drilled in the Permian region by the fourth quarter of 2021, the companies said.

Brigham CEO Robert Roosa said last month that he is optimistic about oil prices, citing supply chain problems that limit production in the oilfield, problems related to Russia’s energy supply, the need to replenish the depleted Strategic Petroleum Reserve and what he described as the inability of the Organization of Petroleum Exporting Countries to ramp up production.

“We have seen long-term structural benefits in the energy sector,” he told investors.

—Collin Eaton contributed to this article.

Write to Benoît Morenne at benoit.morenne@wsj.com