EnCap Investments LP has combined two of its portfolio companies in the Permian basin, creating an oil producer worth more than $4 billion including debt that the private equity firm wants to take public as soon as next year, people familiar with the matter said on Monday.
The energy-focused investment firm has merged Advance Energy Partners and Ameredev II LLC, which both operate in the Delaware portion of the Permian – the region of Texas and New Mexico considered the heart of the U.S. shale industry, where output is expected to exceed 5 million barrels per day in January for the first time ever.
This year’s recovery in crude oil prices sparked a merger spree in the North American shale industry, as operators sought scale to cut costs while slowly growing production. The Permian has been the epicenter for dealmaking, due to its position as the top U.S. oil producing field.
The EnCap deal will create one of the largest privately-owned oil producers in the Delaware Basin, the sources said. The combined company is currently operating eight rigs, according to one of the sources.
The three sources spoke on condition of anonymity to discuss private information. EnCap and Ameredev II declined comment. Advance did not immediately respond to a comment request.
Reuters reported in June that EnCap was marketing Advance for sale for around $2 billion, including debt, to exit an investment originally made seven years ago. Private equity firms tend to usually own assets for three to five years before looking to exit via sales or an initial public offering (IPO).
In the last three years, buyout firms have also frequently merged their own energy companies together – a trend the industry has dubbed “smashcos.” These reduce management costs and create a larger company better suited to operate when crude prices are subdued.
EnCap originally invested $400 million in Ameredev II in 2017 after closing the sale of its predecessor Ameredev I to Callon Petroleum Co that same year. The Ameredev management team, led by Chief Executive Officer Parker Reese, will lead the combined company, the sources said.
EnCap could look to list the combined company as soon as next year if commodity prices remain favorable, the second source said.