In an eye opening move for the energy sector, Houston-based Crescent Energy Co. has announced a merger with its local rival, SilverBow Resources Inc., aimed at creating one of the largest exploration and production entities in the Eagle Ford Shale region of Texas. This merger is expected to unlock substantial opportunities for natural gas, liquids, and oil production in the region.
The transaction, valued at approximately $2.1 billion, was revealed on Thursday, marking a pivotal moment for both companies. This announcement comes just a month after activist investor Kimmeridge Energy Management Co. LLC retracted its contested takeover bid for SilverBow.
Synergies and Strategic Benefits
The merger is set to elevate Crescent Energy to a top-tier producer in the Eagle Ford Shale, second only to EOG Resources Inc. The combined entity is projected to have a pro forma output of around 250,000 barrels of oil equivalent per day (boe/d) in 2024, with a production mix of 44% natural gas, 39% oil, and 17% natural gas liquids.
David Rockecharlie, CEO of Crescent Energy, expressed enthusiasm about the merger, emphasizing the complementary nature of the two companies’ portfolios. “We’re both oil-weighted in terms of the drilling we’re doing today and the future opportunity, but we love adding even more high-quality, gas-weighted locations to be opportunistic from a capital allocation perspective,” Rockecharlie said.
Earlier this year, SilverBow had reduced its natural gas output in the Eagle Ford in response to declining commodity prices. However, Rockecharlie highlighted the importance of optionality in their strategy. The combined inventory will provide significant flexibility in capital allocation through commodity cycles, enabling the company to optimize its investments based on prevailing market conditions.
Enhanced Market Position and Strategic Flexibility
The merger is expected to strengthen Crescent’s natural gas marketing position and provide additional drilling opportunities should gas prices improve. Rockecharlie underscored the company’s commitment to value-driven strategies, stating, “It’s all about value with us, and I think we’ve got a great inventory of locations that are proven. We know what we’re going to get, and we don’t make quick moves up when prices get better.”
The merger will also enhance Crescent’s ability to control capital and avoid taking on assets with significant market challenges. Rockecharlie added, “We try to make sure we get control of our capital. We don’t go out and chase lease expiration, we don’t do exploration, per se…We don’t want to take on assets that have significant challenges getting product to market.”
SilverBow’s CEO, Sean Woolverton, who joined Rockecharlie on the announcement call, highlighted the strategic benefits of the merger for SilverBow. Woolverton noted that the company had been aiming for a balanced commodity mix and the merger with Crescent would provide the necessary balance and flexibility to shift capital between oil and gas based on market conditions.
Merger History and Strategic Alignments
Both Crescent and SilverBow have been actively involved in mergers and acquisitions within the Eagle Ford region. Crescent, which also operates in the Uinta Basin, was formed in late 2021 through the merger of Independence Energy LLC and Contango Oil & Gas Co. SilverBow, on the other hand, recently expanded its South Texas inventory through a deal with Chesapeake Energy Corp.
The combined entity has executed 12 Eagle Ford acquisitions over the last three years, totaling more than $4 billion in transaction value. Despite this consolidation, the Eagle Ford Shale remains one of the most fragmented basins in the Lower 48 states, presenting substantial opportunities for further growth.
Shareholder Involvement and Future Outlook
Woolverton addressed questions regarding SilverBow shareholders, including Kimmeridge, and their involvement in the merger discussions. SilverBow has been scheduled to hold elections for three board members, with the annual meeting now delayed until May 29. Management had previously alleged that Kimmeridge was attempting to force a merger through its board picks. Woolverton assured that there has been extensive dialogue with shareholders, and he is optimistic about their support for the merger.
Both boards have unanimously approved the merger, which is structured as a cash-election merger. SilverBow shareholders have the option to trade each common share for 3.125 shares of Crescent, or receive cash at a price of $38 per share for up to $400 million. Pro forma, Crescent shareholders would own 69-79% of the combined company, with SilverBow stockholders holding 21-31%.
Financial and Operational Projections
Analysts from Tudor, Pickering & Holt Inc. (TPH) reacted positively to the merger announcement, estimating that the combined company would have a value of around $6 billion. SilverBow would contribute approximately 220,000 net acres to Crescent’s South Texas portfolio, along with 1,000 undeveloped gross drilling locations. The maintenance program is expected to be a four- to five-rig operation with $65-100 million in synergies by the start of next year, with potential for further upside.
Andrew Dittmar, principal analyst at Enverus Intelligence Research, weighed in on the potential for a counteroffer from Kimmeridge, noting that it would be challenging to propose a more attractive deal than the current merger terms. Dittmar also highlighted the strategic benefits of the merger, including Crescent’s ability to participate in the Gulf Coast LNG trade and the flexibility to shift development between gas and oil based on market conditions.
Conclusion
The merger between Crescent Energy and SilverBow Resources represents a significant step in consolidating and strengthening their positions in the Eagle Ford Shale. With enhanced strategic flexibility, a balanced commodity mix, and a strong market position, the combined entity is well-positioned to capitalize on future opportunities and deliver value to shareholders. The transaction is expected to be completed by the end of September, marking a new chapter in the growth and evolution of both companies.
