Oil & Gas News

Permian Resources turns focus to smaller acquisitions

Permian Resources turned its focus to smaller acquisitions after combining Colgate Energy and Centennial Resources and now Earthstone Energy.

STORY BY Mella McEwen, Oil Editor |Midland Reporter| Two major deals put Permian Resources on the radar of energy watchers. First was last year’s combination of Colgate Energy and Centennial Resources into the $7 billion Permian Resources. The second was the just-completed $4.5 billion acquisition of Earthstone Energy.

Future such megadeals are not off the table, but the company also sees value in smaller acquisitions, said James Walter, co-chief executive officer of Permian Resources.

The deal to acquire Earthstone was almost a year in the works, he told attendees at the Hart Energy Executive Oil Conference. He said he, co-CEO Will Hickey and their team were focused on companies with inventory that could compete for capital, noting that the company has robust inventory.

“We got tips from bankers and others in the industry who said don’t underestimate Earthstone or the quality of their Delaware Basin inventory. Neither the bankers nor the stock market appreciated the quality. We saw attractive inventory, a high-quality business that was not appreciated,” he said. They also liked that the Earthstone assets were very accretive to earnings.

Walter said the Delaware Basin is the core of the company’s business, taking about 90% of its capital expenditures. But as they dig into the Midland Basin assets that came with Earthstone, “the more we like it. It has a deeper bench of inventory than we thought and a lot of southern locations screen well for us.”

He said the company wants to better understand that portion of the basin before doing any portfolio rationalization.

“As we continue to grow, we’re still extremely flexible,” Walter told his audience. “We are open to anything that makes sense and we welcome people reaching out to us.”

He pondered the future of the oil and gas industry in general, noting that, since it is generating massive amounts of cash flow, it is becoming more attractive to investors. He also pondered the future of the Permian Basin specifically, wondering how much recovery of original oil in place is possible or if the next breakthrough – akin to the unconventional shales – is just a decade away.

“Though we’re not seeing anything, the industry and the Permian Basin in particular are impressive in their technical advances. We’re getting better, faster, cheaper. I wouldn’t bet against this industry or the Permian Basin,” he said.

When he and Hickey decided to move to Midland in 2015 and found Colgate Energy, they didn’t expect the growth they’ve experienced, Walter said.

Permian Resources is so much bigger than we ever expected. If we had been asked eight years ago if we’d build a 350,000 barrel-a-day company, we would have laughed. Our ambition was smaller, but our goal was to build the best Delaware-focused company we could. Our expectations were much lower.”

He acknowledged that they have had a number of opportunities to sell the company but “we liked the opportunity to grow more than the opportunity to sell. The opportunities we get today are as good as they’ve ever been,” he said.

And he praised his new hometown.

“Without a doubt, we could not have built the business we’ve built without the people of Midland,” Walter said.

Original Story HERE

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