An all-stock acquisition in the Permian basin this week has made headlines for the two companies involved—Callon Petroleum and Carrizo Oil & Gas—but the implied value of the deal is multiple times lower than it would have been five years ago during the first wave of the U.S. shale boom.
Pressured by meager returns, if at all, and lower—if any—returns to shareholders, smaller U.S. shale players are looking for economies of scale and acreage positions close to their current ‘sweet-spot’ operations.
Those on the hunt for deals are carefully looking for quality over quantity and are not buying acreage that doesn’t materially improve the quality of their shale assets portfolio, Ryan Luther, a senior analyst with RS Energy, told Forbes contributor Christopher Helman. The analyst was commenting on the M&As in the U.S. shale patch and on this week’s announcement that Callon Petroleum and Carrizo Oil & Gas approved a definitive agreement under which Callon would buy Carrizo in an all-stock transaction valued at US$3.2 billion, including Carrizo’s debt.
The highly complementary deal is expected to realize primary annual run-rate synergies of US$100 million-US$125 million and create…