More Permian Consolidation: Parsley Energy To Buy Jagged Peak

The move will bolster Austin-based Parsley’s holdings in the Delaware Basin, giving it a contiguous 120,000 net acres opposite of its original Midland Basin focus area.

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Parsley Energy has agreed to acquire Jagged Peak Energy in an all-stock deal valued at $2.27 billion, including Jagged Peak’s net debt of $625 million as of 30 June.

The move will bolster Austin-based Parsley’s holdings in the Delaware Basin, part of the greater Permian Basin of West Texas and southeastern New Mexico. After the deal closes, Parsley will have 267,000 net acres in the Permian, consisting of 120,000 net acres in the Delaware and 147,000 net acres in the Midland Basin, Parsley’s original focus area. 

Parsley said the combination of the companies’ acreage positions will create a “highly contiguous” Delaware footprint, allowing for better lease geometry with additional extended lateral wells. The company believes scale and “collaborative best practices” could yield well-cost savings of at least $100/lateral ft across Jagged Peak’s remaining Delaware inventory. Parsley estimates its current average drilling, completion, and equipment costs in the Delaware are $1,100–$1,150/lateral ft.

Infrastructure benefits of the merger include nearly $90 million invested by Jagged Peak in development of fresh and produced water infrastructure across its acreage position, which is by Parsley’s existing water assets.

The deal is also expected to generate cash general and administrative savings of $25 million in the first year and $40–50 million of annual savings thereafter, translating to a net present value of $250–300 million.

The new company will be led by Parsley’s executive management team and will remain headquartered in Austin. The deal is expected to close by the end of first-quarter 2020. Parsley estimates that its 2020 capital expenditure for the combined firm will range $1.6–$1.9 billion, with oil production of 126,000–134,000 B/D. Parsley expects third-quarter net oil production of 91,200–91,700 B/D.

Parsley next year plans to deploy 15 rigs for development and 4–5 frac spreads on average. Five of the rigs will operate in the Delaware.

Under the terms of the agreement, Jagged Peak shareholders will receive a fixed exchange ratio of 0.447 shares of Parsley Class A common stock for each share of Jagged Peak common stock they own. This represents $7.59/share of Jagged Peak based on Parsley’s closing price on 11 October, and a premium of 1.5% compared with Jagged Peak’s 30-day volume weighted average price and 11.2% compared with Jagged Peak’s closing price on 11 October.

Following completion of the deal, Parsley shareholders will own 77% of the combined company and Jagged Peak shareholders will hold 23%.