Permian Resources, led by University Park ‘shalennials,’ makes a $4.5 billion deal

Permian Resources Corp., an oil producer founded by a pair of 30-something University Park natives, is acquiring Earthstone Energy Inc. in an all-stock takeover valued at about $4.5 billion.

It’s the latest deal for Will Hickey and James Walter, the co-chief executive officers of Midland-based Permian Resources who have built up the company into a major independent U.S. shale operator via a series of mergers in recent years.

The “shalennials” took over the helm of Permian Resources in September after a $7 billion merger between private equity-backed Colgate Energy, which they ran for seven years, and publicly-traded Centennial Resource Development Inc.

The takeover of Earthstone will give Permian Resources a pro-forma production of about 300,000 barrels of oil equivalent per day, the companies said Monday in a statement. The transaction is expected to close by year-end.

Permian Resources and Earthstone operate an 11-rig drilling program in aggregate, primarily focused on the Delaware Basin of West Texas and southern New Mexico.

“After evaluating over $20 billion of potential transactions during the past 12 months, we firmly believe the acquisition of Earthstone represented the best transaction for Permian Resources,” Walter said in a statement. “It checks all the boxes.”

When Hickey and Walter took charge at Permian Resources, they forecast a 10% increase in shale oil production. They said at that time they had a key competitive advantage by focusing exclusively on the Delaware Basin in Texas, the western and less developed part of the larger Permian Basin, America’s biggest oilfield.

“If the U.S. is going to grow production, it’s going to be on the back of the Delaware Basin,” Walter told Bloomberg.

The Delaware, especially near the Texas-New Mexico border, is the country’s lowest-cost major production zone and has the highest number of top-quality well locations left to drill, according to S&P Global Commodity Insights. Initially, operations there were much costlier than in the Midland Basin, the eastern part of the Permian, because the area lacked infrastructure like pipelines and storage tanks, deterring some producers.

“The Delaware has more room to run and more top-tier undeveloped inventory than any other basin,” Walter said.

Hickey and Walter started Colgate in 2015 while in their late 20s, just after the oil price crashed as OPEC flooded the market with crude in a bid to wrestle back control from the nascent U.S. shale industry. With backing from Texas-based private equity firms Pearl Energy Investments and NGP Energy Capital, they named their new company after the road they grew up on and moved it to Midland.

They quickly saw an opportunity for leasing acreage for shale oil development around the city of Pecos in West Texas. “The Delaware was really in its infancy back then,” said Billy Quinn, managing director of Pearl.

Hickey and Walter, both graduates from the University of Texas at Austin, assembled contiguous blocks of land that could be used for horizontal drilling and started up their first rig in 2017. When COVID-19 hit in 2020, the company benefited from a strong balance sheet made up of low debt and hedges that helped offset the plunge in oil prices, allowing it to make four acquisitions at the end of 2020 and in 2021.

The merger with Centennial marks a return of more than eight times the roughly $270 million invested in Colgate in three tranches.

“I’m not sure anybody has delivered the type of returns they have over the last six or seven years, especially on the large volume of dollars invested,” Quinn said. “There’s still a long way to go with this company. They’re not done yet.”

Simon Casey and Kevin Crowley, Bloomberg