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Citivas scoops up Crestone Peak amid DJ Basin consolidation


DJ Basin is top consolidating region behind Permian

Civitas now combines Bonanza Creek, Extraction and Crestone

  • Author
  • Jordan Blum
  • Editor
  • Jeff Mower
  • Commodity
  • Natural Gas Oil

The recently named DJ Basin consolidator Civitas Resources is continuing to grow in the region with the acquisition of Crestone Peak Resources June 7, adding to a recent wave of mergers across all major North American shale plays.

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Denver-based oil and gas producers Bonanza Creek Energy and Extraction Oil & Gas agreed to merge in May in a $2.6 billion, all-stock deal and be renamed Civitas. Now they are acquiring Crestone for $1.3 billion, including debt, to progress the consolidation of the DJ Basin region that is dealing with stricter regulations on where companies can drill in Colorado.

The combined company would produce about 160,000 boe/d in Colorado once the deals are closed by the end of 2021, including close to 40% crude oil.

Bonanza Creek CEO Eric Greager is slated to lead the merged Civitas, while Extraction's chairman, Ben Dell, will serve as the board chair of Civitas.

"We are actively building one of the most durable and profitable producers in the DJ Basin," Greager said in a June 7 statement. "Our combination with Crestone is just one early marker of what we hope to achieve as Civitas, as we establish ourselves as the preferred consolidation partner in the DJ Basin and work toward becoming one of the top energy producers in the nation."

Outside of the still-dominant Permian Basin, the DJ and Powder River Basin region has proven the most active for deal-making since the beginning of 2020 with nearly $7.5 billion in mergers and acquisitions, according to S&P Global Platts Analytics. During the same timeframe, the Bakken Shale, for instance, has seen about $5 billion in deals.

And that is not even accounting for the DJ Basin consolidation that occurred in 2019 when Occidental Petroleum scooped up major producer Anadarko Petroleum.

After deal-making was largely halted during the first half of 2020 amid the ongoing coronavirus pandemic, a surge of consolidation picked up once crude oil prices stabilized and investment community pressure continued to focus on capital discipline over increasing barrels. That political and regulatory pressures are heightened in Colorado where the energy transition is a greater emphasis than in other major producing states, such as Texas, North Dakota and Oklahoma.

Last month, the companies said Civitas would become Colorado's first carbon-neutral oil and gas producer after the industry emerges from the pandemic.

The combined company would have an enterprise value of about $4.5 billion with roughly 525,000 net acres in the DJ Basin spread throughout the Colorado basin, although the majority of existing production is in the western portion. Their goal is to continue building on their complementary, contiguous positions in the region to add more value, volumes and cost savings.

Overall DJ Basin production has held stable most of this year at 372,000 b/d of oil and 2.19 Bcf/d of gas, according to Platts Analytics. Those volumes are are expected to stay essentially flat for the rest of this year, with oil output rising to 428,000 b/d in 2022 and 437,000 b/d in 2023, Platts Analytics projects.

Crestone is financially backed by the Canada Pension Plan Investment Board, so the pension plan would become Civitas' top shareholder once the deals close.

Upon completion, Bonanza Creek and Extraction shareholders would each own about 37% of Civitas, and Crestone shareholders, including the Canadian Pension Plan and Denver's The Broe Group, would own 26%.