Parsley Energy to acquire Jagged Peak for $2.27 billion

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

On a pro forma basis, Parsley will have some 267,000 net acres in the Permian comprised of 147,000 net acres in the Midland basin and a mostly contiguous 120,000-net acre footprint in the Delaware basin.

Jagged Peak holds some 75,000 net acres (97%+ operated), targeting the oil-rich southern portion of the Delaware basin located on large, contiguous blocks in the adjacent counties of Winkler, Ward, Reeves, and Pecos. During this year’s second quarter the company turned online 11 gross operated wells and reported average oil production for the quarter of 29,100 b/d. Total equivalent production averaged 38,300 b/d. Second quarter production mix was comprised of 76% oil, 13% NGLs, and 11% natural gas.

Parsley Energy reported total equivalent production for this year’s second quarter of 140,000 b/d with 86,000 b/d of oil production.

The combine is expected to generate cash general and administrative savings of $25 million in the first year and $40-50 million/year of savings thereafter, translating to a net present value of $250-300 million. In addition, Parsley expects further synergies to be realized over time from capital efficiency gains, overlapping acreage, and a water infrastructure network.

Parsley estimates applying scale advantages and collaborative best practices can reduce its current average drilling, completion, and equipment cost in the Delaware basin of $1,100-1,150/lateral ft by at least $100/lateral ft across Jagged Peak's remaining inventory in the basin. The contiguous, interlocking footprint in the basin allows for a more optimized lease geometry with additional extended lateral wells, the companies said.

Jagged Peak has invested nearly $90 million developing fresh and produced water infrastructure across its acreage position. Integrating the infrastructure with Parsley's existing water assets increases corporate flexibility and operational scale, the companies said.

For the third quarter of 2019, Parsley expects net oil production of 91,200-91,700 b/d, translating to 5-6% quarter-over-quarter growth. During this year’s third quarter, Parsley placed on production 35 gross operated horizontal wells with an average working interest of 95% and an average completed lateral length of 10,000 ft. The company expects to report third-quarter capital expenditures of $315-325 million. Third-quarter development spending decreased relative to second-quarter spending, driven by lower well costs, fewer net completions, and quarter-over-quarter decreases in facilities and infrastructure spending.

Parsley estimates that capital expenditures of $1.6-1.9 billion will translate to oil production of 126,000-134,000 b/d of oil in 2020. Both production and capital expenditure range estimates assume a full-year of contribution from Jagged Peak.

Parsley plans to deploy 15 development rigs and 4-5 frac spreads on average in 2020. Parsley anticipates five of its development rigs will operate in the Delaware basin.

The transaction, which is expected to close during the first quarter of 2020, is subject to customary closing conditions and regulatory approvals, including the approval of Parsley and Jagged Peak shareholders. Jagged Peak’s controlling shareholder, Quantum Energy Partners, which owns 68% of the outstanding voting shares of Jagged Peak, has committed to vote its shares in favor of the transaction.

Upon closing, Parsley’s board will be expanded to 11 directors to include two members from the current Jagged Peak board. The combined company will be led by Parsley’s executive management team and will remain headquartered in Austin. Parsley shareholders will own 77% of the combine.