Civitas Resources (CIVI) is reportedly eyeing a merger with another Permian Basin-based firm, SM Energy, in what could be one of the biggest oil and gas deals of the year.

According to a Bloomberg News report, citing people familiar with the matter, the two firms are discussing a deal that wouldn't include a premium and would be structured as a merger of equals. No agreement has been finalized yet, the report cautioned, amid interest from other firms for Civitas assets.

Retail sentiment on Stocktwits about both Civitas and SM Energy was in the 'bearish' territory at the time of writing.

The Permian Basin, which straddles New Mexico and Texas, is the most prolific oil-producing region in the U.S. and offers a robust infrastructure and low production costs. Over the past few years, the area has become a hotbed of merger activity with both smaller and larger players bolstering their reserves. In August, another mid-sized firm, Crescent Energy, agreed to buy Permian-based Vital Energy for $3.1 billion.

Civitas has approximately 140,000 net acres throughout the basin and proven reserves of 444 million barrels of oil equivalent, as stated in its investor presentation from August. If the deal goes through, the combined company would be worth at least $14 billion, including debt, according to the Bloomberg News report.

Both Civitas and SM also hold assets outside the Permian. SM has acreage in the Eagle Ford shale of Texas and Utah's Uinta Basin, while Civitas holds 357,000 acres of land in Colorado's Denver-Julesburg Basin. Civitas has been offloading some of its holdings in the DJ Basin to achieve its debt reduction goals.

Civitas stock has fallen 26.2% this year, while SM Energy stock is down over 36% amid a decline in crude prices due to a rise in OPEC+ supply and easing of some geopolitical tensions.

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