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$7 Billion Merger of Colgate and Centennial, the 2 Largest Permian Operators
06/03/2022
Despite the circulating rumors concerning Colgate’s attempt to launch an IPO, on May 19 the company decided to combine with Centennial Resource Development Inc.
This merger of equals is estimated at $7 billion and will found the biggest pure-play E&P company in the Delaware Basin of the Permian. The transformative combination essentially enlarges companies’ potential and hastens the growth across all financial and operating metrics. The net leaseholds ran to 180,000 acres and the current production is estimated at 135,000 boe/d.
According to Centennial CEO Sean Smith, the combined company is anticipated to furnish shareholders with quickened capital return program due to a fixed dividend coupled with a share repurchase plan.
From a capital return perspective, it is noted that the deal unites Centennial’s share repurchase plan—the $350 million, 2-year share buyback authorization with Colgate’s $25 million quarterly base dividend.
Due to a recent report, the merger would increase production 7%, to 145,000 boe/d by the fourth quarter would further ratchet up next year. By third-quarter 2023, the company predicted 160,000 boe/d based on a drilling program of 140 wells per year.
Colgate Energy is a privately held oil and natural gas company based in Midland, Texas. Founded in 2015 with support from Pearl Energy Investments and NGP, the company made several noteworthy acquisitions this year that have significantly boosted its position in the Permian's Delaware Basin.
Moreover, Colgate Energy Partners III LLC gained a trio of purchases in 2021 in the Permian Basin, two with seller Occidental Petroleum Corp., totaling at least $700 million.
Colgate Energy was reported to be getting an IPO last December that sources said would value the company at approximately $4 billion.
Meanwhile, Centennial Resource Development is a Denver-based independent that went public in 2016 following its merger with Silver Run Acquisition Corp., a blank-check company led by industry icon Mark Papa who would continue to lead Centennial until his retirement in 2020.
The combined company will have over 15-years of drilling inventory, assuming its current drilling pace, the companies will produce over $1 billion of free cash flow in 2023 at current strip prices.
Existing Colgate owners will own about 47% and existing Centennial shareholders are expected to own about 53% of the combined company. The closing of the merger depends on customary closing conditions, including approval by Centennial shareholders and regulatory approvals.
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Colgate Energy's owners are planning to go public
Colgate Energy is planning to float its shale oil producer in the Permian's Delaware Basin on the stock market. If successful, this IPO would be the first major U.S. oil producer offering since Jagged Peak Energy's IPO in January 2017. Looks like investors’ confidence in the sector is returning as U.S. crude prices hit their highest in seven years late last year S&P energy index delivered roughly twice the return of the S&P 500 in 2021.
Look At The Future Of American And Appalachian Gas Production
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Kinetik Holdings recently announced a series of transactions in the energy sector. They struck a deal to buy Durango Permian infrastructure for $765 million. At the same time, they're selling their 16% share in the Gulf Coast Express Pipeline to ArcLight Capital Partners for $540 million. The total purchase cost includes $510 million in cash paid immediately and an additional $30 million that will be paid later, depending on whether they decide to expand further.
Recently, the Permian has seen significant acquisitions: Exxon Mobil purchased Pioneer Natural Resources for about $60 billion. Diamondback Energy's $26 billion deal to acquire Endeavor Energy Resources is currently on hold due to requests from the U.S. Federal Trade Commission. Occidental’s acquisition of CrownRock for $12 billion in the Midland.
EOG Resources is pushing boundaries in Ohio's Utica oil play and now drilling on the Sable pad, also located in Noble County. This site features the 3.7-mile lateral currently under construction. The company's first multi-well pads in the area Timberwolf and Xavier have each produced over 200,000 barrels of oil since their inception—Timberwolf in August and Xavier in October. A third site, the four-well White Rhino pad in Noble County, is also showing promising early results, according to Keith Trasko, EOG’s Senior Vice President of Exploration and Production, who noted the wells are performing as expected in their initial weeks.