U.S. Shale Merger Creates A New $7 Billion Giant

By Tsvetana Paraskova - May 19, 2022

Centennial Resource Development and Colgate Energy Partners III, LLC have agreed to combine in a $7.0-billion merger of equals, creating the largest pure-play exploration and production (E&P) firm in the Delaware Basin in the Permian, the companies said on Thursday.

The combined firm will be the largest pure-play E&P company in the Delaware Basin, with around 180,000 net leasehold acres, 40,000 net royalty acres, and total current production of approximately 135,000 barrels of oil equivalent per day (Boe/d).  

The $7.0 billion merger of equals values Colgate at approximately $3.9 billion and is comprised of 269.3 million shares of Centennial stock, $525 million of cash, and the assumption of approximately $1.4 billion of Colgate’s outstanding net debt.

The boards of directors of both companies have unanimously approved the deal, which is expected to close in the second half of this year.

The new firm aims to significantly increase cash returns to shareholders, with over $1 billion of expected free cash flow in 2023 at current strip prices, Centennial and Colgate said.

“We are excited to partner with Colgate as we share a common vision for the pro forma company that includes a strong balance sheet, a disciplined investment program to drive cash flow and a robust return-of-capital program,” said Sean Smith, Chief Executive Officer of Centennial.

The deal follows a strong start to 2022 upstream mergers and acquisitions in the U.S. oil and gas industry, although activity slowed down after early March when oil prices spiked following the Russian invasion of Ukraine.

A total of $14 billion in deals were announced during the first quarter of 2022, energy data analytics company Enverus said last month. The $6 billion in transactions in January 2022 was the strongest M&A market launch in five years. However, the last significant transaction in the first quarter occurred in early March before a spike in commodity prices temporarily halted activity, Enverus noted.