Permian Merger Mania Heats Up With The Birth Of A $4 Billion Shale Oil Giant

Investment firm EnCap has merged two of its portfolio companies to create a shale oil producer in the Permian worth $4 billion, Reuters has reported, citing unnamed sources familiar with the matter.

Advance Energy Partners and Ameredev II both operate in the Delaware Basin and, according to the report, will see total Permian oil production reach 5 million bpd for the first time as soon as next month.

The merger of the two will result in one of the largest privately held players in the Delaware Basin at a time when the shale oil industry is undergoing the latest consolidation drive.

This consolidation could accelerate in the near future as the recent increase in oil price volatility motivates more companies to merge or sell assets, especially amid equally increased uncertainty about the long-term future of the oil industry stemming from the global emissions-cutting drive.

Consolidation is one way to make the industry more stable and resilient to future shocks, but also to stabilize oil prices. The reason is that there would be fewer players in a field and, as a consequence, fewer differing views on what the right level of oil production is.

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Research from IHS Markit earlier this year indicated that U.S. shale oil production was on the rise despite large companies' reluctance to return to a growth strategy. It turned out production was rising thanks to small private independents that had no shareholders to return cash to.

The merger of Advance Energy Partners and Ameredev is an instance of what the energy industry is calling "smashcos"—the result of mergers between portfolio companies of energy investment firms. These smashcos, according to the Reuters report, were better positioned to operate in an environment of lower oil prices.

EnCap may list the new company as soon as next year, according to the Reuters sources.

By Charles Kennedy for Oilprice.com

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