In an all-stock, US$3.1 billion deal, Crescent Energy (NYSE:CRGY) has agreed to buy rival Vital Energy (TSXV:VUX, NYSE:VTLE), propelling the company into the top ten independent US oil and gas producers.
With almost ten years of superior drilling inventory, the merged company will operate in numerous significant US oil basins, such as the Eagle Ford, Permian, and Uinta.
Crescent stated that it will use its “lower activity, greater free cash flow” strategy on the recently purchased properties in an effort to increase investor returns through prudent capital allocation.
The company estimates that the acquisition will result in immediate yearly synergies of between US$90 million and US$100 million. In order to strengthen its balance sheet and provide capital flexibility, it also outlined plans to sell off non-core assets worth up to $1 billion USD.
Although management indicated that a stronger balance sheet and synergies will get the business closer to having an investment grade credit rating, the merger will become the largest US liquids-weighted producer without one.
The deal states that each Vital share will be exchanged for 1.9062 shares of Crescent Class A common stock, which is 15% more than Vital’s 30-day average trading price as of Friday, August 22. Upon closing, Crescent shareholders will hold approximately 77 percent of the merged business, while Vital shareholders will hold approximately 23 percent.
According to Crescent Chairman John Goff, “this transaction is revolutionary for Crescent and aligned with our objectives.”
“Crescent has established itself as a top ten independent firm with a line of sight to an investment grade credit rating thanks to its remarkable trajectory of returns-driven expansion through M&A.”
Crescent CEO David Rockecharlie referred to the purchase as “compelling value for all shareholders,” emphasizing that the company’s US$1 billion divestment pipeline and free cash flow model will support long-term growth.
Following the announcement, Crescent stock dropped 7.6 percent to US$9.19 on Monday, August 25, while Vital Energy shares increased more than 10 percent to US$17.43.
Crescent’s M&A-driven growth plan continues with this acquisition. With the completion of its US$2.1 billion merger with SilverBow Resources last year, the company’s stake in the Eagle Ford Shale was greatly increased.
Oil market rebounds
In general, the oil market has had a good start to the week.
Brent and West Texas Intermediate crude have been rising steadily since dropping to US$64.98 and US$61.97 per barrel, respectively, on August 13. On Monday, they approached a three-week high.
West Texas Intermediate was valued at US$65.01, and Brent was valued at US$69.06.
A substantial 6 million barrel reduction in US crude stockpiles has been attributed to the rise, indicating higher-than-expected demand and bolstering a rebound following weeks of declines.
Tailwinds have also been exacerbated by limited global supply and geopolitical unpredictability associated with the stalled peace talks in Ukraine. Long-term sentiment is still impacted by growing OPEC+ output projections, which limits more gains.
