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NorthAmOil COMMENTARY NorthAmOil
Parsley buying Jagged Peak in Permian mega-merger
Parsley Energy is buying Jagged Peak Energy in a $2.3bn transaction that stands out as one of only a small handful of shale deals this year, writes Anna Kachkova
PERMIAN BASIN
WHAT:
Parsley has agreed to acquire Jagged Peak for $2.3bn including debt.
WHY:
The company was previously considered
a takeover target itself but is trying to become a bigger Permian player.
WHAT NEXT:
More shale deals could come, but they are likely to be driven by private capital or super-majors.
PARSLEY Energy has struck a deal to acquire Jagged Peak Energy in an all-stock deal valued at $2.27bn, which includes roughly $625mn of debt. The deal, which comes during a period of fairly lacklustre merger and acquisition (M&A) activity, will expand Parsley’s footprint in the Permian Basin.
M&A activity has been relatively slow this year aside from a small handful of major trans- actions. The most prominent among these, Occidental Petroleum’s $55bn acquisition of Anadarko Petroleum, was completed in August. Meanwhile, Callon Petroleum’s agreement to take over Carrizo Oil & Gas in a $3.2bn deal is expected to close this quarter. PDC Energy’s acquisition of SRC Energy, valued at around $1.7bn, is also anticipated to close in the fourth quarter. But more broadly, oil companies, and shale drillers in particular, have come under investor pressure to prioritise returns over growth, while their access to financing for deals has diminished.
Parsley sought to allay shareholder concerns by noting that it expected the “low-premium” acquisition of Jagged Peak to immediately boost cash flow per share after it closed in the first quarter of 2020. Nonetheless, Parsley shares fell about 11% to $15.14 on the news. Jagged Peak’s shares, meanwhile, dropped 2.6% to $6.64,
compared with the offer price of $7.59 per share. Nonetheless, a SunTrust Robinson ana- lyst, Neal Dingmann, said the deal was overall positive, but added that Parsley’s shares would come under pressure on investor concerns over deal-making and the timing of the company’s
free cash flow, among other reasons.
Permian boost
Parsley was thought by many analysts to be a takeover target itself for a larger Permian player, such as a super-major. However, the company now appears to be positioning itself to com- pete with the bigger producers in the basin. The acquisition of Jagged Peak will increase Parsley’s holdings in the Delaware Basin portion, which has been more prolific recently than the more mature Midland Basin.
Parsley said that in total it would have 267,000 net acres (1,080 square km) in the Permian once the deal closed, comprised of 147,000 net acres (595 square km) in the Midland and 120,000 net acres (486 square km) in the Delaware. The com- pany said its increased Delaware Basin footprint would be “highly contiguous”, bolstered by Jag- ged Peak’s “high-margin, oil-weighted” assets, which amount to roughly 78,000 net acres (316 square km).
Parsley expects the acquisition to allow it to
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w w w . N E W S B A S E . c o m Week 41 15•October•2019