Page 5 - NorthAmOil Week 41
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NorthAmOil COMMENTARY NorthAmOil
drill additional extended lateral wells in the Del-
aware Basin. The acquisition will allow it to drop
a drilling rig, leaving a combined 15 compared
with 16 currently, and rotate rigs in and out of
thebasinasrequired. “Thisisasimpledeal,”Gallaghersaidduring
corporate culture aligns with our core values. In short, we now have a premier Delaware Basin business that rivals our foundational Midland Basin business,” he added.
In addition, Parsley expects to achieve well cost savings of at least $100 per lateral foot across Jagged Peak’s remaining inventory in the Delaware Basin. The company estimates its own Delaware Basin drilling, completion and equip- ment costs to be $1,100-1,150 per lateral foot, having brought them down during the course of 2019 through efficiency improvements and scale advantages. Parsley is now intending to apply its scale advantages to Jagged Peak’s acreage.
The company added that Jagged Peak’s water infrastructure would boost flexibility and opera- tional scale once integrated with its own.
Under the terms of the agreement, Jagged Peak shareholders will receive 0.447 shares of Parsley Class A common stock for each share of Jagged Peak common stock they own, Parsley said. Following the closing of the transaction, Parsley shareholders will own roughly 77% of the combined company, while Jagged Peak share- holders will own the remaining 23%.
Parsley expects the combination to gen- erate cash general and administrative (G&A) savings of around $25mn in the first year, fol- lowed by $40-50mn per year of savings thereaf- ter, translating to a net present value (NPV) of $250-300mn.
“The combination of Parsley and Jagged Peak is a natural fit,” Parsley’s president and CEO, Matt Gallagher, said in a statement. “Jagged Peak’s oily, high-margin asset base slots in nicely to our returns-focused development approach, its acre- age footprint and water infrastructure dovetails into our legacy Delaware Basin position, and its
a webcast on the transaction. “It’s about buttress- ing our model with high-margin cash flow and high-return Permian oil projects ... in which free cash flow growth is king.”
Doubling down
Parsley’s expansion comes two years after it last embarked on a buying spree in the Permian. In January 2017, the company said it had agreed to acquire undeveloped acreage and producing oil and gas properties adjacent to its own acreage in both the Midland and Delaware basins in sep- arate transactions worth a combined $607mn. Then in April of that year it closed a deal to buy certain Midland Basin assets from Double Eagle Energy Permian and some of its affiliates for roughly $2.8bn.
M&A activity in the Permian has slowed since then, but it is thought that consolidation would benefit some of the larger players in the basin, and indeed, more deal-making activity could fol- low. Any upcoming deals could involve private capital, given the diminished lines of credit avail- able to public companies as they come under investor pressure to rein in spending. Alterna- tively, super-majors ExxonMobil and Chevron could take over a Permian independent as they seek to boost their holdings in the basin. Indeed, Chevron had agreed to take over Anadarko ear- lier this year before being outbid by Occidental, and its failed agreement is thought to have been motivated in part by Anadarko’s Permian assets. Further mergers of equals among independents are also possible, but less likely.
Parsley was thought by many analysts to be a takeover target itself for a larger Permian player.
Week 41 15•October•2019 w w w . N E W S B A S E . c o m
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