DALLAS—Spur Energy Partners CEO Jay Graham expects to spend as much as $1 billion more as it pursues a consolidation strategy following its recent acquisitions in the Permian Basin.
Spur, led by Graham and other expats from WildHorse Resource Development Corp., has already spent about $1.3 billion in Permian acquisitions. WildHorse sold its assets to Chesapeake Energy Corp. in February for about $4 billion.
However, Graham said Spur—backed by KKR & Co. Inc. and The Energy & Minerals Group—isn’t reliant on an A&D exit to make money, adding that the prove-up and sell model that typified the early days of the shale revolution has largely passed.
“We’re getting out of the build and flip. It’s been a good 12-year run of doing that,” he said.
Speaking at Hart Energy’s A&D Strategies and Opportunities conference, Graham said Oct. 23 that Spur is managing its portfolio “as if we will hold [it] forever.”
As with public companies, Graham’s private venture will focus on cash flow. The company is not looking toward a three- to five-year exit, including an IPO.
“Our business plan long term, we plan to sell this company every day,” he said. “We’re selling this company every day, barrel by barrel.”
So far, Spur had struck deals in the Permian hinterlands of the Northwest Shelf with plans to return dividends in the fourth quarter. Graham chose to stay out of areas being heavily focused on by E&Ps and “put our technical expertise in an area we know we can excel. We know we can do a good job and we can consolidate a lot of things together.”
“I really expect over the next year to two or three years we can put as much as $2 billion to $3 billion [total] to work up here as far as consolidation is concerned,” he said.
Still, the company’s first two deals turned out to be more difficult than Graham had imagined.
“Right now, the industry, the way it is, it’s tough sledding,” he said.
In September, Spur signed a purchase and sale agreement with Concho Resources Inc. to buy its New Mexico Shelf assets for $925 million. The divestiture included roughly 100,000 gross acres and average production of 25,000 barrels of oil equivalent per day (boe/d). Graham said the deal is set to close, as expected, on Nov. 1.
In its first deal, Spur closed an acquisition of Percussion Petroleum LLC’s New Mexico assets. Percussion, a Houston-based independent producer, was backed by private-equity firm Carnelian Energy Capital Management LP. The terms of the transaction were not disclosed, though the cost was roughly about $300 million based on Graham’s comments.
“Concho’s Northwest Shelf assets provide a perfect complement to Spur’s existing” position, Graham said.
After closing, Spur’s net production is expected to be about 34,000 boe/d with estimated 2020 EBITDA of $240 million. Production is 80% liquids, including 54% oil. The company is running a single-rig program.
Still, Graham described hard-knuckled negotiations in putting the Percussion and Concho deals together. During discussions with Concho, the company “as a negotiating ploy, they put it in a data room.”
Spur pushed hard to sign the deal and get it pulled from the data room.
“Taking two public companies public and selling them was a hell of a lot easier than trying to get this deal over the finish line and getting it closed,” he said. “Investors are just skittish right now.”
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