Crescent Energy (CRGY + SBOW) drawing more attention

[dan_s]

I cannot stress enough how important it is that KKR is involved in this deal.

NEW YORK (S&P Global Ratings) May 20, 2024-S&P Global Ratings today took the
rating actions listed above.
The outlook revision reflects Crescent's increased size and scale and lower
pro forma cost structure.

- U.S.-based oil and gas exploration and production company Crescent
Energy Co. announced it has agreed to acquire Eagle Ford shale focused
SilverBow Resources Inc. for about $2.1 billion, including the assumption of
about $1.1 billion of Silverbow's debt.
-- Silverbow shareholders can elect to accept 3.125 Crescent Energy Class
A shares for each share they own or $38 cash, up to a maximum cash
consideration of $400 million.
-- The acquisition will increase Crescent's total equivalent production (over 250,000 Boepd)
by about 55% and year-end proved reserves by about 45%, making the company one
of the largest gross operated producers in the Eagle Ford.
-- We affirmed our 'B+' issuer credit rating on Crescent and revised the
outlook to positive from stable to reflect the company's increased size and
scale and lower pro forma cost structure. The positive outlook also reflects
our belief that the company will use excess cash flow to reduce short-term
debt and bring funds from operations (FFO) to debt close to 60% in the next 12
months.

Silverbow's assets are entirely in the Eagle Ford shale in South Texas. It
produces about 91,000 barrels of oil equivalent per day (boe/d), 27% oil, 19%
natural gas liquids (NGL), and 54% natural gas. Its total year-end 2023 proved
reserve base was 446 million boe, 37% of which was oil and NGL, and 45% was
classified as proved developed. On a pro forma basis, Crescent will become the
second-largest gross operated producer in the Eagle Ford after EOG Resources
Inc. It will have the third-largest acreage position with about 450,000 net
acres, which should provide economies of scale. The Eagle Ford will account
for about 70% of Crescent's 250,000 boe/d of pro-forma production and the
Rocky Mountain region the remaining 30%.

The acquisition should reduce pro forma operating costs.
Silverbow's operating cost profile will lower Crescent's relatively high cost
structure. Silverbow's cash operating costs (i.e., lease operating expense,
production taxes, and general and administrative costs) averaged about $11/boe
in the first quarter of 2024, versus Crescent's more than $20/boe. This is in
part due to Silverbow's focus on lower-cost unconventional shale production
versus Crescent's conventional production and more mature reserve base. In
addition, Crescent has identified $65 million-$100 million of annual operating
and capital cost synergies it expects to achieve over the next year, including
faster drilling times and use of simul-fracs. Much of the expected cost
savings ($45 million) will come from Crescent's planned refinancing of
Silverbow's $500 million second-lien notes, which carry an interest rate of
over 13% (versus Crescent's current yields of about 7%).

We expect Crescent to use excess cash flow to repay revolver borrowings over
the next 12 months.
To provide initial funding for the transaction, Crescent expanded the
commitments under its reserve-based lending (RBL) facility to $2 billion from
$1.3 billion, which we expect the company will tap to repay outstanding
borrowings on Silverbow's credit facility ($596 million as of March 31, 2024)
and fund the cash portion of the deal (up to $400 million). After closing, we
expect Crescent to use excess cash (beyond base dividends) to pay down its RBL
before executing major share repurchases.

The positive outlook reflects Crescent's increased size and scale and lower
pro forma cost structure, and the likelihood of an upgrade if the company uses
excess cash flow to repay debt and reduces the outstanding borrowings on its
RBL. This would enable it to bring FFO to debt close to 60%. We would also
expect it to generate positive discretionary cash flow and maintain adequate
liquidity. We expect FFO to debt to average 55%-58% over the next two years.

We could revise the outlook back to stable if:
-- FFO to debt falls below 45% for a sustained period; or
-- Liquidity deteriorates.

This would most likely occur if the acquired assets do not perform as expected
or the company does not use excess cash flow to repay debt as anticipated.

We could raise our rating on Crescent if it:
-- Successfully integrates the Silverbow acquisition; and
-- Brings FFO to debt close to 60% for a sustained period.

This would most likely occur if Crescent efficiently develops the acquired
assets and uses excess cash flow to pay down debt, including reducing the
amount drawn on its RBL.

[Cliff_N]

Dan, it appears the market is liking this merger. Both CRGY and SBOW are now up. What is KKR? Looked through the article and did not see it. Assuming that CRGY will replace SBOW on the Sweet 16?

[dan_s]

KKR owns ~15% of CRGY
Market Cap is over $97 billion.
KKR backs Crescent Energy

It is a VERY LARGE private equity and real estate investment firm specializing in direct and fund of fund investments. It specializes in acquisitions, leveraged buyouts, management buyouts, credit special situations, growth equity, mature, mezzanine, distressed, turnaround, lower middle market and middle market investments.
https://www.kkr.com/

[dan_s]

From Crescent Energy's 10-K: Our Relationship with the KKR Group < IMO this is very important to the merger with SBOW

We are a party to a Management Agreement with the Manager, that engages the Manager to provide certain management and investment advisory services to usand our subsidiaries. Our management team provides services to us pursuant to the Management Agreement.

The Manager is an indirect subsidiary of the KKR Group. The KKR Group is a leading global investment firm that offers alternative asset management as well as capital markets and insurance solutions.

Pursuant to the Management Agreement, the Manager has agreed to provide us with management services, including our full executive and corporate
management teams, and other assistance, including with respect to strategic planning, risk management, identifying and screening potential acquisitions, identifying and analyzing sustainability-related issues and providing such other assistance as we may require.

Through our integration with the KKR Group’s global platform, we believe that we benefit from: the power of the “KKR Brand;” KKR Capstone, which
creates value by assisting with due diligence and identifying and delivering sustainable operational performance improvements within the KKR Group’s
portfolio companies; KKR Global Macro and Asset Allocation, which assists with assessing the impact of macroeconomic factors on potential investments and helps identify market opportunities; KKR Capital Markets LLC ("KCM"), which assists with optimizing the capital structure of investments and underwrites and arranges debt, equity and other forms of financing for both KKR portfolio companies and independent clients, and KKR Public Affairs, which, together with the KKR Global Institute, provides insight into sustainability, regulatory, geopolitical, and reputational issues, including experience working with key stakeholders, such as labor unions, industry and trade associations and non-governmental organizations.

[Fraser921]

Kimmeridge threw in the towel today, withdrew their BOD nominees