DALLAS — Now that the dust has started to settle on Crescent Energy’s $2.1 billion transaction acquisition of SilverBow Resources, Crescent is showing no signs of slowing its growth through M&A.

But a degree of prudence is involved.

CEO David Rockecharlie said the company’s acquisition of SilverBow’s assets in the Eagle Ford added around 220,000 net acres in the western Eagle Ford. The company’s production averaged 91,400 boe/d (46% oil/liquids) during the first quarter.

And Rockecharlie sees the company continuing to proceed in growth mode, he said at the A&D Strategies and Opportunities Conference on Oct. 23.

“When we think about the vision for the company in the next five years, we believe we can profitably double the business,” he said.

As recently as September, Crescent announced a bolt-on acquisition of 13,000 acres in the central Eagle Ford Shale for $168 million.

The SilverBow acquisition added to that impetus to conduct M&A, as long as it makes sense, he said.

“We had both been acquisition oriented, both acquiring in the same basin in regional areas, and so putting that together,” he said. “There were some things we knew immediately that we ought to be able to integrate and get the value out of together. But I think there's also a lot of longer term things as a combined company where we look at where our strengths were in bringing those together. So very excited about where we are.”

But as E&Ps have embraced fiscal discipline, M&A growth-oriented companies like Crescent are exercising M&A self-restraint.

Yet even with a pipeline of M&A, as Rockecharlie has called it, the company is not out buying willy-nilly. 

Rockecharlie said the company sees opportunities to make its assets better, but that every deal is evaluated based on how it will drive returns first, and then screened for a “strong combination” of both investing skills and strong operating skills.

“I think that's the biggest driver, as you get what I'll call confidence, expertise and a track record of success in a core area, when things come up that look attractive, we certainly look at everything that we think can fit us,” he said.

But only on occasions will the company pull the trigger.

“We typically look at 150 to 200 transaction opportunities a year, and we do somewhere between zero and three,” he said.

‘Ton of gold’

Rockecharlie said the company continues to aggressively evaluate deals, but not without recognizing the assets that are already embedded within its company.

“Within our company, …there's a ton of gold buried in things we already own,” he said.

Rockecharlie said that includes examining optimization, better understanding the resources the E&P owns and finding new places to develop.

In the Eagle Ford, the company has great opportunities to “back in within infill drilling, to go back to areas that have been what were historically stranded acreage.”

A ground game, along with swaps and trade opportunities, are also valuable ways for the company to expand.

“As the basin has matured more … it is one of the most fragmented basins as well,” he said. “So I think one of the things we see is our ability to bring what we know how to do well to new acquisitions, but also find ways to do more on what we already own.”

Operational improvements include refracs or applying new drilling and completion techniques or traditional infill development and expansion in shale areas such as the Austin Chalk, and even the Upper Eagle Ford, that haven’t “been fully exploited yet.”

The ancillary benefits of being in the Eagle Ford—such as access to LNG export facilities are also nice to have, rather than what is driving the company’s expectations of how to drive multiples. 

“In terms [of] … things to come [for] LNG, long-term trends, we certainly are aware of those and want to align our business up with those, but the fundamental investment decisions are all based on what we think we can drive in the near term,” he said. “And a couple of our key kind of guiding principles on acquisitions and really any investment in the company is we want to be able to make two times our money or more cash on cash returns, and we want to do that in five years or less.”

But the company is set up with significant inventory runway, which “we believe is 10 plus years of proven development oriented drilling.”

The biggest unknown E&P?

Crescent’s holdings in the Uinta Basin are also part of the company’s long-term value creation plan.

The company purchased EnCap Investments-backed Verdun Oil assets, which had previously been held by EP Energy.

Not long after, SM Energy purchased XCL Resources in the basin in a deal valued at $2.6 billion.

The deals may help buoy the market’s knowledge of Crescent.

“One of the things we believe, and I think hopefully we're starting to change with some of our more public facing discussions, is that we feel like we're the largest company nobody's ever heard,” he said.

So, Rockecharlie said he was pleased to see more activity in the area.

The resource, he said, holds great potential.

“It's not going to ever get the attention that the Permian or even the Eagle Ford get because [the] overall size and scale is not comparable, but the resource potential of our position and of the basin is just tremendous,” he said.

For Crescent, working through the play is still in the “very early days.”

“We made that acquisition really based on from a valuation perspective, the PDP value of the business, but we saw a tremendous upside there,” he said. “And so yes, we do expect there to be a tremendous opportunity going forward and we'll continue to … talk about the results after we've delivered, but certainly we're optimistic about that area.”

Divestiture backdrop

Overall, after roughly two years of breakneck M&A, Rockecharlie said he’s seeing acquisitions becoming more opportunistic and the market as a whole returning to a “steady state.”

Divestitures will also start to peel off from larger M&A deals. Rockecharlie sees what he terms the “flow of the non-core divestitures” starting to come to market in three to five years—presuming no wild commodity price volatility.

“So I think we're probably already in the planning stages as an industry of continuing to high grade portfolios,” he said. “Significant consolidation and M&A activity I believe will continue to drive divestitures. And one of the things we talk about a lot with Crescent is that we're an acquisition company, so it is nice to remind people every once in a while we are in the A&D business and as we grow, we'll continue to build in our core areas.

“But we may have assets that don't fit us any longer and we'll continue to look for those opportunities as well.”

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