Lower 48 minerals and royalty rights producers Desert Peak Minerals and Falcon Minerals Corp. have agreed to combine in an all-stock transaction with holdings concentrated in the Permian Basin and targets in the Austin Chalk, Eagle Ford and Marcellus shales.
The merger, with an enterprise value of $1.9 billion, estimates combined production by mid-year would be 13,500-14,500 boe/d, with most activity (73%) in the Permian.
“We believe the ownership of Permian minerals and royalties is trending toward larger-scale, more efficient institutional ownership,” Desert Peak CEO Chris Conoscenti said. “Our strategy is to be the leading consolidator of these high quality Permian assets. We believe our scale is a clear strategic advantage in the minerals business as we are able to drive down fixed costs per unit of production with each acquisition, enhancing our cash margins.
Desert Peak, created in 2019 by private equity giant Kimmeridge Energy Management Co. LLC, controls more than 105,0000 net royalty acres (NRA) in the Permian through 175-plus acquisitions. Falcon was created in 2018 as an umbrella partnership C corporation, or Up-C, with stakes in 21,000-plus NRAs in the Austin Chalk and Eagle Ford, as well as more than 12,000 in the Marcellus.
‘Improves Access to Capital’
“As we have previously communicated to our shareholders, we believe scale matters in the minerals business, as it enhances the ability to drive greater consolidation, improves access to capital and reduces volatility caused by asset concentration,” Falcon CEO Bryan Gunderson said.
Falcon Chair Claire Harvey said over the past several months, assisted by independent financial and legal advisers, the company conducted “a thorough evaluation of a number of alternatives to maximize shareholder value. Following our comprehensive review, we believe that a combination with Desert Peak represents the best opportunity to maximize value for Falcon’s shareholders.”
Once the merger is completed, Desert Peak would become a subsidiary of Falcon’s operating partnership, known as OpCo. The combined company would retain Falcon’s Up-C structure and focus on consolidating Permian acreage.
The combined company is to be managed by the Desert Peak team and led by Conoscenti. Kimmeridge partner Noam Lockshin, whose firm would be the largest equity holder, would chair the company.
Once completed, Desert Peak equity holders would own 73% of the company, with existing Falcon shareholders owning 27%. The Blackstone Group, which controls 40.6% of the voting power of Falcon, has agreed to vote in favor of the transaction.
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