Permian producer Centennial to buy Colgate for $2.5 billion

Paul Takahashi May 19, 2022

(Bloomberg) — Centennial Resource Development Inc., a shale oil producer in the Permian Basin, agreed to acquire private equity-backed rival Colgate Energy in a cash-and-stock deal valued at about $2.5 billion.

The deal creates “the largest pure-play E&P company” in the Delaware Basin, which forms part of the Permian, Sean Smith, chief executive officer of Centennial, said in a statement Thursday. 

The Permian Basin of West Texas and New Mexico -- the largest and most productive US oilfield -- has long been a focus of consolidation because it’s immensely lucrative and fairly fragmented. Growing concerns about dwindling inventory of top-tier well sites is expected to drive more mergers and acquisitions in the prolific shale patch. 

Colgate, which started in 2015 with backing from Pearl Energy Investments and Natural Gas Partners, has been one of the most active private drillers in the basin, producing 70,000 barrels of oil equivalent per day. It grew aggressively last year with its purchase of assets from Occidental Petroleum Corp. and Luxe Energy LLC. 

Colgate was preparing to go public, but began considering a sale after receiving takeover interest, Bloomberg previously reported. 

The combined company, operating under a new name and stock ticker symbol to be announced later, will be headquartered in Midland, Texas, and have an office in Denver. Smith will serve as executive chairman of the board, while Colgate’s co-CEOs Will Hickey and James Walter will lead the company as co-CEOs and serve on the company’s expanded 11-member board.

The acquisition would more than double Centennial’s acreage and production, for a cost of less than $10,000 per acre for Colgate’s roughly 105,000 net acres, said Andrew Dittmar, a mergers and acquisitions analyst with energy research firm Enverus.  

“From Centennial’s point of view, the combination with Colgate immediately jumps the company into another bracket for market size and operational scale,” Dittmar said. “The substantial operational and potential corporate-level synergies combined with a long inventory runway of 15+ years should drive a robust capital return program with the details yet to be announced.”

The deal is expected to close in the second half of the year. Shares of Centennial were down more than 7.7% as of 1:48 p.m. in New York amid broader market declines.

Centennial’s financial adviser is Citi and its legal adviser is Latham & Watkins LLP. Colgate’s financial advisers are Credit Suisse Securities (USA) LLC and Jefferies LLC, and its legal adviser is Kirkland & Ellis LLP.

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