SilverBow Resources (SBOW) has reached a deal to be acquired by Crescent Energy (CRGY), creating a leading producer in South Texas. The agreement with CRGY, valued at $2.1B, comes after SBOW spurned an earlier offer by investor Kimmeridge Texas Gas (KTG).
SBOW and CRGY announced the merger agreement last Thursday (May 16). Under the deal, SBOW shareholders have the option to receive 3.125 shares of CRGY common stock, or cash valuing SBOW at $38/share. The maximum value of the cash component is $400MM under the cash-elect merger structure.
In March, KTG proposed to create a CombineCo stock with SilverBow valued at $34/share. KTG estimated the combination to be worth $2.1B under the “double dummy” merger structure. SBOW’s board rejected that offer, saying it could not independently verify KTG’s valuation of its assets and that it “substantially undervalues” SBOW.
East Daley noted the stakes were high in South Texas in the Kimmeridge–SilverBow battle. KTG is an investor in Commonwealth LNG and has signed a multi-year transportation agreement with Kinder Morgan Texas Pipeline (KMTP) in support of that project. Moreover, multiple G&P systems provide services for the producers in South Texas.
Clients can analyze the midstream exposure of the proposals for SBOW using the ‘Producer to System Analysis’ dashboard in Energy Data Studio. Midstream companies serving CRGY and SBOW in the Eagle Ford include Western Midstream (WES), Enterprise Products (EPD), Energy Transfer (ET) and KMI (see figure from EDS).
KTG’s offer for SBOW would create an Eagle Ford pure-play with 2025E production of 180 Mboe/d. By contrast, the SBOW-CRGY entity would be more diversified, with drilling locations in the Rockies and Eagle Ford and estimated 2024 production of 250 Mboe/d.
The KTG-SBOW combo targets a 70% gas, 30% liquids production ratio for 2025, while the CRGY-SBOW entity would produce 60% gas, 40% liquids in 2024. The estimated profile for the CRGY-SBOW transaction represents only a slight departure from the 54% gas, 46% liquids ratio that SBOW provided in its standalone 2024 guidance.
In addition to the different merger structures, strategy appears to be a factor favoring the deal with Crescent. KTG had sought a deal with SBOW to control more Eagle Ford acreage and feed downstream investments like Commonwealth LNG. CRGY is acquiring SBOW to add drilling locations to a growing business portfolio with more flexibility to target either gas or liquids, depending on the price.
The CRGY-SBOW agreement would create one of the leading producers in the Eagle Ford with average 2023 production of ~604 MMcf/d and future growth opportunities (see figure). SBOW and CRGY expect to close the merger by the end of 3Q24. – Zach Krause Tickers: CRGY, EPD, ET, KMI, SBOW, WES.
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