Shariq Khan. David French. Jessica Resnick-Ault

(Reuters) – EnCap Investments LP has merged two Permian Basin portfolio companies to create an oil producer with a total value of more than $4Billion, including the debt. The private equity firm plans on making the company public in next year’s fiscal year, sources familiar with the matter stated Monday.

Advance Energy Partners has been merged with Ameredev II LLC to form an energy-focused investor firm. This is the Delaware section of the Permian, which includes New Mexico and Texas. The Permian area of Texas and New Mexico are considered to be the core of U.S. shale production. Production will likely exceed 5 million barrels daily in January.

As operators seek scale and cost savings, while slowing growing their production, the recovery in oil prices in this year has sparked a merger frenzy in North American’s shale sector. Due to its status as America’s top oil producer field, the Permian is the center of dealmaking.

Sources said that EnCap is expected to create the Delaware Basin’s largest private-owned oil producer. One source said that the company combined currently has eight operating rigs.

Three sources agreed to speak anonymously in order not to reveal private information. EnCap and Ameredev (2) declined to comment. Advance didn’t immediately reply to my comment request.

Reuters reported June that EnCap was selling Advance to sell for approximately $2 billion (including debt) in order to exit an original investment made seven years back. Private equity firms typically hold assets for between three and five years, before selling or going public.

Buyout firms are also known for merging their own energy companies, a phenomenon the industry calls “smashcos” over the last three decades. They reduce the management cost and make it possible to run a bigger company when oil prices fall.

EnCap had previously invested $400m in Ameredev I in 2017. This was after it sold its predecessor Ameredev I, to Callon (NYSE 🙂 Petroleum Co. Sources said that the Ameredev management team led by Parker Reese (CEO) will be leading the new company.

The second source stated that EnCap might list the company combined as soon as next years if the commodity price remains favorable.