Latest US Shale Merger Creates $7-Billion Oil and Gas Company

Upon closing, the newly combined oil company will boast 135,000 BOE/D and hold around 15 years’ worth of drilling locations in the Permian Basin.

Source: Getty Images.

After a relative lull in big mergers and acquisitions within the US shale sector, Centennial Resource Development and Colgate Energy Partners III announced plans to combine the two companies. The deal will create a company valued at around $7 billion, inclusive of $1.4 billion in debt currently held by Colgate.

On a pro forma basis, the newly merged firm boasts a total hydrocarbon production of 135,000 BOE/D and holds around 170,000 leased acres in the Delaware Basin—representing the western half of the prolific Permian Basin.

Just over two-thirds of the combined acreage lie in the Texas side of the Delaware Basin with the rest in New Mexico. This encompasses about 105,000 acres leased by Colgate and another 74,000 leased by Centennial. Based on current drilling activity, the two companies estimate they hold at least 15 years’ worth of new well inventory.

The $7-billion deal places a $3.9-billion price tag on the privately held Colgate with the remainder comprising more than 269 shares of the publicly traded Centennial and $525 million in cash on hand. The companies added in an announcement that the impending merger should generate more than $1 billion in free cash flow next year at current oil and gas prices.

“This transformative combination significantly increases scale and drives accretion across all our key financial and operating metrics. Colgate’s complementary, high-margin assets are a natural fit for Centennial, creating the largest pure-play E&P company in the Delaware Basin,” Sean Smith, CEO of Denver-based Centennial, said in a statement on 19 May.

The announcement comes after the US shale sector saw $14 billion in mergers and acquisitions during the first quarter of the year. However, the pace of dealmaking slowed after oil prices surged to historic highs following Russia’s invasion of Ukraine which fueled ongoing concerns about tight supplies.

When the merger closes, which is expected to happen later this year, Smith will transition from CEO of Centennial to an executive chair of the board for the combined firm. Centennial's Denver offices will remain open “for the foreseeable future to ensure continuity,” the companies said.

Will Hickey and James Walter, the current co-CEOs of Colgate, will retain their roles with the combined firm which is to be headquartered in Midland. “The merger of Colgate and Centennial is compelling from a financial, operational and strategic standpoint, establishing a leading Permian Basin independent,” Walter said in the announcement.

Backed by private-equity firms Pearl Energy and NGP Capital, Colgate has amassed much of its acreage through about $1 billion in acquisitions made since 2018. Earlier this year, Colgate was rumored to be seeking to become a publicly listed company—plans that did not come to fruition as a standalone firm.

Prior to closing the companies said they plan to announce a new name and that the merged entity will be publicly listed.