$1.9 billion oil and gas merger targets Permian Basin amid growing energy prices

A $1.9 billion merger was completed last week between two Permian Basin oil and gas companies that own more than 100,000 acres in the region that spans southeast New Mexico and West Texas.

Desert Peak Minerals and Falcon Minerals announced their plans to combine in January, bringing the new company’s holdings to 139,000 acres with 105,000 acres in the Permian and announced the deal closed on June 7.

The company, now known as Sitio, expected to produce up to 14,000 barrels of oil per day in 2002.

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Sitio Chief Executive Officer Chris Conoscenti said the company would continue to seek out and acquire lands in the basin to produce fossil fuel in one of the U.S.’ most active oilfields.

“Sitio’s distinguished profile as a leading consolidator in the minerals and royalties space will only continue to strengthen over time with the execution of our proven strategy, focusing on large-scale accretive acquisitions across diversified operators,” he said.

Noam Lockshin, chairman of Sitio’s board of directors said the deal was intended to improve profit returns for shareholders, following a trend since the COVID-19 pandemic sent oil prices plummeting below $0 a barrel of operators opting for fiscal discipline rather than increasing production.

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“Sitio has already adopted a best-in-class governance model that is structured to drive long-term shareholder returns and strong alignment with all its stakeholders,” Lockshin said. “When leadership and directors are incentivized to drive outperformance and to optimize shareholder returns, as they are at Sitio, everyone wins.

“We believe this is the backbone of any successful public company, and Sitio is leading the way in this space.”

While drilling and extraction of oil and natural gas was expected to continue to grow in the Permian, more water was needed to complete well using hydraulic fracturing when water, sand and chemicals are pumped underground to break up shale deposits to bring hydrocarbons to the surface.

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NextMart announced the beginning of its program to acquire water rights in New Mexico, hoping to provide access to the state’s water to oil and gas companies looking to drill in the region.

In a news release, the company said its program was in “direct response” to growth in the area and its energy industry.

CEO William Bouyea said higher energy prices in recent months increased demand for more drilling, and he said he expected operators would need more water.

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As of Monday, the Chicago Mercantile Exchange reported domestic oil was trading at about $120 a barrel, and the price was expected to maintain in the triple digits until June 2023.

That was the highest oil price since $109 a barrel was reported in September 2013, per historical data from Nasdaq.

Those high energy prices translated to increased operations with New Mexico adding five rigs in the last week as of Friday, per data from Baker Hughes, for a total of 103 – the most growth during that time period among all U.S. states.

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Basin-wide, three rigs were added for a total of 345 rigs, records show, while Texas dropped a rig last week for a total of 356, but added 137 rigs in the last year.

“The historically fast increase in the price of oil and gas has spurred oil and gas drilling and production in the Permian Basin,” Bouyea said. “With oil is at its highest price per barrel in well over a decade domestically, increased production is a natural occurrence.

“It goes without saying that the amount of water used by our clients will increase almost 100 percent in correlation to any increase in oil and gas drilling as well as actual production."

The company planned to set up water stations throughout the basin where it can pump and then transfer water to clients across New Mexico and Texas.

Since 2018, the company reported its Permian Basin operations generated about $40 million in profits.

“We are excited to announce that we are acquiring water rights in the New Mexico area of the Permian Basin allowing us to capture a revenue stream that has historically been a pass-through,” Bouyea said. “This new revenue stream can be expanded as we endeavor to develop additional water stations in our market."

Adrian Hedden can be reached at 575-628-5516, achedden@currentargus.com or @AdrianHedden on Twitter.

This article originally appeared on Carlsbad Current-Argus: $1.9 billion oil and gas merger targets Permian Basin