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$7 Billion Merger of Colgate and Centennial, the 2 Largest Permian Operators

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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