U.S. oil producer APA (APA.O) said on Thursday it was buying rival Callon Petroleum (CPE.N) in an all-stock transaction valued at $4.5 billion including debt, following on the heels of a record year for dealmaking in the largest U.S. shale field.
Callon's assets will add heft to APA's operations in the Permian shale basin of West Texas and New Mexico, with about 145,000 drilling acres that puts nearly 64% of APA's production in the United States.
The Permian has become a prime target for oil and gas producers looking to increase their inventory.
"The important thing here is we're adding scale in two ways, both in the inventory and with the activity... we do see great value in this transaction," APA CEO John Christmann said during a conference call.
Callon's shares were up 4.5%, while APA was down 6.6%.
The drop in (APA) share price reflects limited synergies and questions about the extent of the quality drilling acreage being acquired, wrote Jefferies market strategist William Atcheson.
But other analysts viewed the acquisition as a positive for APA.
"It goes a long way to addressing investor concerns surrounding inventory depth," said Gabriele Sorbara, analyst at Siebert Williams Shank & Co.
Callon and APA's boards unanimously approved the deal, the companies said in statements announcing the merger, which is expected to close in the second quarter.
Energy firms have been taking advantage of a surge in their share prices to launch all-stock acquisitions, avoiding big cash outlays that would jeopardize buyers' balance sheets.
Under the deal, each share of Callon will be exchanged for 1.0425 shares of APA, an about 14% premium to Callon's prior close and which values each Callon share at $38.31.
Once the deal closes, existing APA shareholders will own about 81% of the combined company and existing Callon shareholders will hold nearly 19%.
