Centennial and Colgate to Combine, Creating $7.0 Billion Permian Basin Pure-Play
20 May 2022 - On 19 May 2022, Centennial Resources Development, Inc. (Nasdaq:CDEV; "Centennial") announced it had entered into a cash-and-stock merger agreement with privately held Colgate Energy Partners III ("Colgate"), creating a $7 billion Permian Basin energy company and the largest pure-play in the Delaware Basin. Centennial shareholders will own 53 per cent. of the combined company, and existing Colgate owners will own 47 per cent. Colgate Co-CEOs Will Hickey and James Walter will assume the Co-CEO roles, with Centennial's CEO, Sean Smith, to serve as Chairman of the Board.
With approximately 180,000 net leasehold acres, 40,000 net royalty acres, and total production of 135,000 boe/d, the combined business is expected to generate over $1 billion of free cash flow in 2023 at current strip prices and possess over 15 years of high quality drilling inventory. Both companies intend to extend their track record in emissions footprint reduction, following an approximately 43 per cent. reduction in greenhouse gas emissions for the combined company during the 2020-2021 period.
Proforma for this transaction, Centennial/Colgate will have less than 1.0x debt/EBITDA. The combined company announced an initial $100 million annual dividend in addition to Centennial's previously announced $350 million share buyback authorisation, which was expected to commence this quarter but which had not yet been tapped previous to today's announcement. The merger is expected to close in the second half of 2022, subject to shareholder and regulatory approvals.
We welcome this transformational transaction that will create a premier Permian Basin pure-play. Bolstered by a strong balance sheet the company will continue prioritizing its commitment to ESG excellence through the reduction of its GHG emissions and by driving continued improvements in minimizing flaring. The pro forma business will maintain its Board committees devoted to ESG initiatives and continue to tie executive compensation to ESG performance. Its Corporate Sustainability Reports will remain a staple of its investor outreach effort. The combined businesses will focus on maximizing corporate-level returns and generating free cash flow with a focus on returning it to shareholders. These ongoing efforts, together with a larger and more liquid float, will help expand its shareholder base and accelerate REL's transition to a pure-play decarbonisation investment portfolio.
REL holds ~12.5 million shares in Centennial valued at $94 million as at market close on 18 May 2022 of $7.49 per share. REL has invested $268 million into Centennial since 2016, and has realised $194 million, or 72 per cent. of its cost basis, through proceeds from share sales. The previously realised plus unrealised position as of close on 18 May 2022 marks Centennial at 1.1x Gross MOIC for REL.
Additional information on the merger can be found on the Company's website: https://www.cdevinc.com/.
Centennial Resource Development, Inc. (Nasdaq:CDEV) is an independent oil producer with assets in the core of the southern Delaware Basin, a sub-basin of the Permian Basin in West Texas. With approximately 75,500 net acres and 15+ years of economic inventory, we are pursuing a growth strategy grounded in technical leadership, strong well results, attractive investment returns and a conservative balance sheet. Centennial is headquartered in Denver, Colorado.
About Riverstone Energy Limited:
REL is a closed-ended investment company that has since 2020 been exclusively focussed on pursuing and has committed $167 million to a global strategy across decarbonisation sectors presented by Riverstone's investment platform. REL's ordinary shares are listed on the London Stock Exchange, trading under the symbol RSE. REL has 18 active investments spanning decarbonisation, oil and gas, renewable energy and power in the Continental U.S., Western Canada, Gulf of Mexico and Europe.