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Permian Resources, a US shale operator, recently announced its acquisition of Earthstone Energy in a deal worth $4.5 billion, including debt. This all-share transaction is part of the growing trend among upstream producers who are seeking to enhance their inventory.
By acquiring this oil and gas producer, Permian will strengthen its operations in the Texas shale patch and New Mexico. It will expand its assets by over 400,000 acres and increase production by 70% to 300,000 barrels of oil equivalent per day.
Under this deal, Earthstone shareholders will receive 1.446 shares of Permian’s common stock for each of their own.
This announcement coincides with the resurgence of mergers and acquisitions in the upstream oil and gas sector. Producers, who currently have substantial cash reserves, are actively looking to secure additional drilling sites.
According to Enverus, US upstream M&A activity totaled $24 billion in the second quarter, a 167% increase from the slow first quarter and the highest level since 2021. Enverus reported 20 deals during this period, with over a quarter of them exceeding $1 billion in value.
Andrew Dittmar, the director of Enverus, explained that the pressure to secure quality drilling sites in the Texas shale patch has been steadily mounting. He stated, “The need to make a deal becomes more urgent as available opportunities diminish with each successive transaction.”
In May, Chevron’s $6.3 billion acquisition of PDC Energy, which is listed on Nasdaq, significantly boosted the supermajor’s oil and gas reserves in Colorado. These acquisitions by Chevron and Permian deviate from the prevailing trend of public companies acquiring private-equity backed operators. They indicate an increasing incidence of public company acquisitions as attractive valuation and large inventories become more elusive among private operators.
“It’s a race to consolidate the Permian,” said Matthew Bernstein, the shale analytics manager at Rystad Energy, an energy consultancy. He also added, “This public-to-public merger in the Permian is a unique occurrence this year.”
The acquisition of Earthstone is expected to propel Permian into the top ten producers in the highly productive Texas shale patch.
In pre-market trading on Monday, Earthstone’s shares surged over 9%, while Permian’s shares declined by 3.4%.
According to the Energy Information Administration, US crude oil and dry gas production are projected to reach record highs this year. However, the growth rate is slowing as finding new drilling sites becomes increasingly challenging, and public operators prioritize shareholder returns over capital expenditure.
The EIA predicts that annual US crude production will increase by 850,000 barrels per day in 2023. This represents a decline from the record increase of 1.6 million barrels per day seen between 2017 and 2018.
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