Permian, a US shale oil operator, announced Monday that it would buy Earthstone Energy for $4.5bn in all-share transactions including debt. Upstream producers are increasingly looking to make deals in order to improve their inventory.
The acquisition will increase Permian’s assets in Texas and New Mexico by over 400,000 acres, and its production by 70% to 300,000 bbls of oil equivalent each day.
Earthstone will receive 1.446 Permian common shares for every Earthstone common share.
The announcement coincides with the return of mergers in the oil and gas upstream sector. Producers sitting on record amounts of cash are looking to shore up additional drilling sites. Enverus reports that US upstream M&A reached $24bn during the second quarter. This is up 167 percent from the first quarter’s slow pace and is the highest level since 2021. Enverus, an energy research firm, tracked 20 deals during the second quarter. More than a quarter were valued at more than $1bn.
Andrew Dittmar of Enverus said that the need for public purchasers to secure high-quality drilling inventory within the Texas shale patches had “brewed”. He said that the pressure to close a deal was increasing as each transaction reduced the number of remaining opportunities.
Chevron’s $6.3bn acquisitionof Nasdaq traded PDC Energy, in May, was one of the biggest deals in the second quarter. It increased the supermajor’s oil and natural gas reserves in Colorado.
Chevron and Permian have taken a different route to dealmaking than the usual public companies that pursue private equity-backed operators. These deals indicate that public companies will be more likely to acquire private operators as they become harder to locate with large inventories and attractive valuations.
Matthew Bernstein, the shale analysis manager at Rystad, an energy consulting firm, said: “It’s race to consolidate Permian.” He said: “As for a large public-topublic merger [in the Permian], we haven’t yet seen this in this year.”
Permian is expected to move up the ranks of the Texas shale industry with the acquisition of Earthstone.
Earthstone shares soared more than nine per cent on Monday in pre-market trade, while Permian’s were down by 3.4 percent.
According to the Energy Information Administration, US crude oil production and dry gas will reach new records this year. Although output is increasing, growth is slowing down as drilling sites are harder to locate and public operators prioritize shareholder returns over capital expenditure.
According to the EIA the US crude oil production will increase by 850,000 barrels a day in 2023. This is down from the record-breaking 1.6mn b/d growth seen between 2017-2018.