Colgate Energy Partners III LLC and Centennial Resource Development Inc. have reportedly signed an agreement to consolidate in an equal value merger.
The merged company will be Delaware Basin’s largest E&P company with close to 40,000 net royalty acres, 180,000 net leasehold acres, and overall existing production of close to 135,000 Boe/d.
The consolidated company intends to use its top-quality, scaled asset base to steer leading stakeholder returns. It is positioned to substantially increase cash returns to stakeholders, with more than USD 1 billion of free cash flow at existing strip prices in 2023.
The USD 7 billion merger values Colgate at USD 3.9 billion and includes 269.3 million Centennial shares, USD 525 million cash, and the assumption of close to USD 1.4 billion of the outstanding net debt of Colgate.
With interim free cash flow and current cash balances, the company expects to register a net ratio of debt-to-LTM EBITDAX of close to 1.0x.
Centennial Chief Executive Officer Sean Smith stated that the path-breaking consolidation substantially upscales and steers accretion across all its major operating and financial metrics.
Smith added that the high-margin assets of Colgate complement Centennial thus creating Delaware Basin’s largest E&P company.
The merged company will offer stakeholders an expedited capital return program via a fixed dividend along with a share repurchase plan.
Centennial and Colgate share a vision for the pro forma firm that comprises a robust balance sheet, a strong return-of-capital program, and a disciplined investment program to steer cash flow.
Colgate Co-CEO Will Hickey cited that the Centennial and Colgate teams have exhibited a clear execution track record over the years.
Hickey added that both companies have established strong operational and financial cultures and expect the merged company will be an affordable operator that can deliver better stakeholder returns and margins.
The transaction has been unanimously sanctioned by the Boards of Directors of Centennial and Colgate Energy and is expected to be executed by the second half of this year.