Parsley Energy (PE) Update - Dec 18

[dan_s]

Parsley Energy's all-stock merger with JAG is now expected to close in early January. Based on my Pro Forma forecast, Parsley will move quickly to reduce the expenses of the combined companies by over $33 million in 2020. A big chunk of the savings will come from staff reductions. This is sad for the people that loose their jobs, but it comes with the M&A territory. I worked at Hess Corp. for 18 years and went through six staff reductions (1983 to 2001). After we moved from Tulsa to Houston in 1996 and sold a lot of non-core assets, I had to personally lay off 100 of my staff. It is not fun.
After the merger closes, Parsley will have close to 200,000 Boe per day of production (approximately 63.5% crude oil) and lots of running room. PE is one of my Top Picks for 2020.

By Greg Avery – Reporter, Denver Business Journal
Dec 18, 2019
The acquisition of a Denver oil company will eliminate all 92 of the jobs at its headquarters in early 2020.

Jagged Peak Energy Inc. (NYSE: JAG) is being acquired in an all-stock transaction valued at $2.3 billion by Austin-based Parsely Energy Inc. (NYSE: PE). It expects to lay off its CEO James Kleckner and other top executives and operations personnel after the deal closes Jan. 10.

The remaining Denver employees are slated to be let go in rounds of layoffs in February and March, according to a Worker Adjustment and Retraining Notification Act noticed filed with the Colorado labor office officials.

“All affected employees at the Denver location have been provided notice and advised that their separation from employment will be permanent,” said an accompanying letter from Jagged Peak to Denver Mayor Michael Hancock.

The closure of Jagged Peak’s downtown headquarters isn’t a surprise.

Parsley Energy and Jagged Peak both develop and operate oil and gas wells in the Permian Basin region of West Texas, with Jagged Peak focused on the Delaware Basin portion of the Permian.

Parsley Energy told investors it sought to add Jagged Peak’s neighboring oilfield operations in the Delaware Basin to add crude oil and natural gas production, not increase Parsley Energy’s staff size.

Jagged Peak’s oil wells have been 10% to 15% more productive than Parsley’s nearby wells, and buying Jagged Peak should drive down Parsley’s drilling costs by $500,000 per well, predicted Matt Gallagher, CEO of Parsley Energy, on an October call to investors about the deal.

A recent prospectus the companies filed revealed that no fewer than five other companies had approached Jagged Peak about acquiring its business or merging. It illustrates the pressure U.S. shale oil producers are under from investors to produce cash flow to pay for ongoing operations, driving many to explore mergers and acquisitions to increase their scale and efficiency.

“You need to be picking dance partners, and this was a logical fit for us and a logical fit for Jagged Peak,” Gallagher said on the call.

The top executives from Jagged Peak Energy are expected to each make millions from stock option payouts and other benefits when the transaction closes.

The shareholder vote is scheduled for Jan. 10. The results are not in doubt.

Houston-based Quantum Energy Partners, the controlling shareholder of Jagged Peak, agreed as part of the acquisition agreement to vote its shares in favor of the transaction.