The Daley Note: September 1, 2023
Permian Resources (PR) will acquire Earthstone Energy (ESTE) in an all-stock transaction valued at $4.5 billion. The deal gives PR valuable acreage in the northern Delaware Basin that could draw rigs away from other G&P systems in the Permian.
PR and ESTE announced the merger on August 21. Earthstone will expand PR’s existing asset base in the northern Delaware and add properties in the southern Midland sub-basin. The combined company will have over 400,000 net acres and 300 Mboe/d of production in the Permian.
In an investor presentation, PR executives highlighted upside from ESTE’s acreage in New Mexico, much of which is adjacent to the company’s operations in the northern Delaware. PR estimates it can achieve $115MM in synergies from better drilling and completion practices and leaner operations in the area.
Permian Resources did not guide to rig cuts, but the E&P could shuffle its resources once the merger closes. PR is a longtime counterparty of Kinetik’s (KNTK) Raptor system in the central Delaware, and the bulked-up position in New Mexico poses new competition. East Daley allocates 23% of natural gas volumes on the Raptor system to PR, as shown in East Daley’s G&P System Analysis tool in Energy Data Studio (see figure).
The producer’s migration north appears to be under way. As of August 18, East Daley allocates 2 PR rigs to KNTK – Raptor in Energy Data Studio, down from 6 rigs on the system at the beginning of June (see figure). By contrast, PR is running 5 rigs in Lea County, NM where Targa Resources (TRGP) gathers 54% and Enterprise Products (EPD) gathers 26% of PR’s gas volumes, per East Daley’s allocation model. – James Taylor Tickers: ESTE, KNTK, PR, TRGP.
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