The majority of the 78,000 net-acre foothold Jagged Peak assembled in the Southern Delaware Basin directly offsets Parsley Energy’s legacy position in the Permian sub-basin. (Source: Hart Energy)
Parsley Energy Inc. completed its multibillion-dollar acquisition of Permian Basin neighbor Jagged Peak Energy Inc. on Jan. 10—less than 90 days from when the proposed combination was first publicly announced.
Matt Gallagher, Parsley’s president and CEO, said the expedited closing of the $2.3 billion (including debt) all-stock transaction will allow the Austin, Texas-based company to “hit the ground running on ... capturing tangible synergies” that he expects will drive efficiency and in turn generate additional free cash flow.
“Execution will continue to speak louder than words, and our integration efforts will retain the sense of urgency and accountability that defined our successful 2019 action plan,” Gallagher said in a statement. “Ultimately, we expect that the culmination of this hard work will be a more capital efficient enterprise with more free cash flow.”
The transaction is Parsley’s first major acquisition since Gallagher took the helm after the company’s founder Bryan Sheffield stepped back from the CEO role.
In an interview with Bloomberg published Jan. 9, Gallagher said this will be the year when U.S. shale drillers finally deliver solid returns to investors, reversing the industry’s decade-long reputation as capital destruction machines. “2020 is going to see free cash flow in spades,” he told Bloomberg.
The Jagged Peak acquisition is set to more than double Parsley’s position in the Delaware Basin. The company expects the expansion to support additional extended lateral wells and further operational efficiencies that it said will generate cash general and administrative savings of about $25 million within the first year. Between $40 million and $50 million of annual savings are expected thereafter.
Jagged Peak was formed in 2013 with financial backing from private equity firm Quantum Energy Partners. The Denver-based company later went public in 2017 in one of the rare, non-SPAC IPOs for upstream since the oil market crash of 2014.
The majority of the 78,000 net-acre foothold Jagged Peak assembled in the Southern Delaware Basin directly offsets Parsley’s legacy position.
With the Jagged Peak acquisition completed, Parsley now holds roughly 267,000 net acres in the Permian Basin. In particular, the acquisition boosted the company’s position in the Delaware sub-basin to about 120,000 net acres, up from its original 42,000 net acres.
Pro forma 2020 oil production for the combined company is pegged between 126,000 and 134,000 barrels per day.
Parsley is planning a 2020 capex between $1.6 billion and $1.9 billion, up from last year’s $1.4 billion to $1.47 billion budget. Plans include deployment of 15 development rigs, five of which will be in the Delaware Basin. The company also expects to average four-to-five frac spreads for the year.
Well cost savings are also anticipated of at least $100 per lateral foot across Jagged Peak’s remaining inventory in the Delaware Basin. Parsley’s current average drilling, completion and equipment cost in the Delaware is about $1,100-$1,150 per lateral foot, the company estimated in an October news release.
Consideration of the Jagged Peak acquisition was comprised entirely of Parsley stock, which more than 99.5% of Parsley shareholders voted in favor for at a special meeting held Jan. 9, according to a company news release.
Parsley shareholders were expected to own about 77% of the combined company with Jagged Peak shareholders owning the remaining roughly 23%. Parsley also assumed Jagged Peak’s net debt as of June 30 of about $625 million upon closing.
Also part of the transaction, S. Wil VanLoh Jr., Quantum Energy Partners’ founder and CEO, and Jim Kleckner, former president and CEO of Jagged Peak, joined the Parsley board. VanLoh and Kleckner both served as Jagged Peak directors. Their addition to the Parsley board expands the number of directors on the company’s board to 11.
The combined company will be led by Parsley’s executive management team and will remain headquartered in Austin.
Tudor, Pickering, Holt & Co. was exclusive financial adviser and Kirkland & Ellis LLP served as Parsley’s legal counsel for the transaction. Citi and RBC Capital Markets LLC were financial advisers to Jagged Peak with Vinson & Elkins LLP providing its legal counsel.
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