Could Crescent, SilverBow Buy More in South Texas After $2.1B Deal?

Crescent Energy’s combination with SilverBow Resources will yield one of the Eagle Ford Shale’s largest operators and leaseholders.

The $2.1 billion transaction also addresses investor questions about SilverBow, which has sought to strengthen its balance sheet and add scale in South Texas.

SilverBow has about 220,000 net acres in the western Eagle Ford. The deal is expected to deliver production of 90,000 boe/d and 1,000 gross undeveloped locations to the pro forma company.

Crescent had approximately 231,000 net acres in the Eagle Ford as of year-end 2023, according to regulatory filings; net Eagle Ford volumes reached nearly 16.2 MMboe in 2023, or an average of 44,358 boe/d.

The pro forma company expects to rank among EOG Resources and ConocoPhillips as the top Eagle Ford producers.

Crescent also has a major footprint in Utah’s Uinta Basin. The company holds around 434,000 net acres in the Rockies, per regulatory filings.

SilverBow shareholders will receive $38 per share under the terms of the deal—a 17% premium to the company’s prior-day close. Consideration will include 3.125 shares of Crescent stock for each SilverBow share; SBOW shareholders are also able to elect to be paid in cash up to a total of $400 million.

Andrew Dittmar, senior M&A analyst at Enverus Intelligence Research, said the deal touches on key concerns for SilverBow, including balance sheet strength and Eagle Ford scale.

The pro forma company will have a much larger platform to consolidate within the Eagle Ford. It’s an area where Crescent has been growing. The company spent around $850 million on western Eagle Ford M&A in 2023.

The 17% premium to the prior-day close was “a bit higher than what has been seen in recent upstream consolidation,” Dittmar said in a May 16 report.

Like Crescent’s earlier Eagle Ford acquisitions, the SilverBow deal looks to have been priced “essentially at the value of current production with little to nothing paid for the undeveloped inventory,” Dittmar said.

“That has been a common theme in Eagle Ford M&A, where deals lack the high prices paid but also the quality seen in Permian inventory,” he said.

The synergies and economies of scale from the deal might also make it difficult for SilverBow activist investor Kimmeridge to make an attractive competing offer.

Kimmeridge—SilverBow’s largest shareholder holding 12.9% of the E&P’s outstanding shares—made an offer to combine SilverBow with Eagle Ford affiliate Kimmeridge Texas Gas (KTG), which SilverBow rejected.

SilverBow remains in a proxy fight with Kimmeridge, which has put forward three board candidates for consideration at SilverBow’s annual meeting on May 21.

Mark Viviano, managing partner and lead portfolio manager at Kimmeridge Energy Engagement Partners, said at Hart Energy’s SUPER DUG Conference and Expo in Fort Worth, Texas, that the firm found out about the deal on May 16 like everyone else.

“We are evaluating that deal,” he said. “We will try to find out more from management about why that’s the right deal.”

Stephen Trauber, managing director, chairman and global head of energy and clean technology of Moelis & Co., said the transaction looks to be a good strategic fit for Crescent and SilverBow.

But he was surprised by the timing of the announcement.

“I think SilverBow needed to do something, in light of what Kimmeridge was attempting to do there,” Trauber said at Super DUG. But he said a number of other potential buyers were looking over SilverBow. Despite that, “they didn’t wait for others to submit offers.”

“I don't want to surprise anybody, but I wouldn't be surprised if somebody else comes in with a higher offer,” Trauber said.

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South Texas Scale

The SilverBow acquisition will add more than 600 locations to Crescent’s drilling inventory, despite the transaction not allocating value to SilverBow’s undrilled inventory.

After closing, the pro forma company will have around 1,150 low-risk inventory locations—or over 10 years of drilling inventory. Crescent is guiding for around 2,200 net undrilled locations.

After closing the SilverBow deal, Crescent is expected to continue its acquisition-focused strategy in the Eagle Ford.

“The Eagle Ford remains one of the most fragmented basins in the Lower 48 with substantial opportunity for further growth,” Crescent CEO David Rockecharlie said during a May 16 conference call with analysts.

SilverBow has also been an active Eagle Ford consolidator. Late last year, SilverBow closed a $700 million acquisition of Chesapeake Energy’s oil and gas assets in South Texas.

Crescent “is likely to resume opportunistically consolidating” in the Eagle Ford after closing the SilverBow deal and reducing debt.

Crescent CFO Brandi Kendall said the company isn’t planning to launch a specific non-core divestiture program to deleverage from the SilverBow deal. The company is expecting a 1.5x leverage ratio at closing.

Dittmar said Crescent could take advantage of the many private equity investments in the Eagle Ford, like EnCap-backed Verdun Oil.

The Crescent-SilverBow deal will create a company with an enterprise value of around $6 billion, Tudor, Pickering, Holt & Co. analysts reported.

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