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The First Sign Of A Consolidation Wave In U.S. Shale

Fund manager Paulson & Co. Inc, a shareholder of Callon Petroleum, is dropping its opposition to a merger between Callon and Carrizo Oil & Gas that could be the start of consolidation among smaller shale players after the massive Occidental-Anadarko deal.

Paulson & Co, which held 9.5 percent of Callon Petroleum earlier in November, said on Monday that it no longer opposes the deal and would vote in favor of the proposed all-stock merger, after the two energy companies revised the terms of the agreement to give a lower premium to Carrizo shareholders.

Paulson will, however, cut its shares in Callon.

The first announcement of the proposed merger was made in July. The terms of the initial deal valued Carrizo at US$1.2 billion.

But Paulson has been opposing the terms of the proposed deal, saying that a standalone Callon would be less risky by focusing just on the Permian.

In an effort to save the deal, Callon and Carrizo amended the terms of the deal last week, cutting the exchange ratio for the all-stock merger, which now implies a much lower premium for Carrizo shareholders—6.7 percent, compared to 25 percent premium in the initial terms of the deal.

Paulson has argued that the initially proposed steep premium was not worth the spend, and Callon would no longer be a pure Permian play producer after picking up Carrizo.

The revised merger terms were satisfactory to Paulson, which said today it no longer opposes the deal, but it cut its shareholding in Callon, although it was unclear by how much.

“While Paulson believes that a pure Permian focused producer would be a more attractive alternative, Paulson respects that different shareholders might have different viewpoints on this matter. As such, although Paulson no longer opposes the transaction, it has reduced its investment position in Callon,” the fund manager said.  

The Callon and Carrizo deal was expected to be the litmus test of a possible new wave of mergers and acquisitions (M&A) in the U.S. shale patch after Occidental and Anadarko completed in August one of the largest oil deals of the past few years.  

By Tsvetana Paraskova for Oilprice.com

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