Colorado shale deal leaves CPP Investment Board as largest investor in Civitas
(Bloomberg) --The consolidation of the Colorado oil and gas industry advanced with a $1.06 billion acquisition, the latest in a wave of mergers in the fragmented shale patch.
Bonanza Creek Energy Inc. and Extraction Oil & Gas Inc. -- which announced a merger last month and a plan to rename the combined entity Civitas Resources Inc. -- said Monday they’re buying closely held Crestone Peak Resources LLC. Crestone investors will get 22.5 million shares of Bonanza, according to a statement. All three companies operate in the Denver-Julesburg Basin.
The swift move to scoop up a third company before Bonanza Creek and Extraction closed their own deal is due to investor sentiment more than a heightened thirst for deals in the Colorado market, where more onerous government regulations remain a concern for the industry, Eric Greager, chief executive officer at Bonanza Creek, told analysts and investors Monday on a conference call.
“There’s just not that much competition for bidding up the assets,” Greager, who will be CEO of the combined company, said on the call. “More importantly, the question is how quickly can you do it to capitalize on an open window in the culture around value in consolidation.”
Investors have been pushing for more mergers in the U.S. shale industry to realize cost savings and create companies that achieve a greater scale and return more cash to shareholders.
While going through bankruptcy last year, Extraction held talks with Crestone but ultimately couldn’t get a deal done on its own, Ben Dell, chairman of Extraction, said Monday in a phone interview. Dell, founder and managing partner of Kimmeridge Energy Management Co., will be chairman of Civitas.
The companies are focused on getting their current slate of deals finished “for now,” but Civitas wants to continue to be a consolidator in the region over time, Dell said. “Basin consolidation will continue to reduce costs,” he said.
Canada Pension Plan Investment Board is Crestone’s primary shareholder and will be become Civitas’s biggest investor. It will also get a director on the Civitas board following the closing of the latest deal, which is expected in the fall, immediately after the completion of the Bonanza-Extraction combination.
Bonanza shares rose 1.6% to $48.00 at 11:10 a.m. in New York trading while Extraction climbed 1.3% to $55.33.
