Colgate Energy and Centennial Resources recently confirmed a merger to create a $14 billion Delaware Basin independent producer following their previous merger agreement to create Permian Resources, a Midland Reporter-Telegram report stated. Through the agreement, Midland’s Permian Resources will acquire Earthstone Energy.
The all-stock transaction is valued at approximately $4.5 billion. The combination will add 223,000 net acres to the Permian Resources’ space, bringing the total to more than 400,000 acres. The space will collectively create a $14 billion Delaware Basin exploration and production company.
The deal is expected to result in gradual free cash flow, according to Permian Resources co-chief executive officers Will Hickey and James Walter. The accretive is expected to sum up to an average of 30% during the next two years and 25% per year during the next five to 10 years.
Synergies are projected to drive $175 million of annual cash flow improvement, increasing the Permian Resource dividend by about 20%.
“The Midland Basin does have high-quality locations, and with just one rig running enough sub-$50 per barrel breakeven location to sustain around five years of drilling,” he wrote. “It also has over 300 other net locations that break even at higher oil prices. Given the relative paucity of M&A opportunities in the basin, the asset would draw buyer interest, but a sale would also be financially dilutive to the company at current multiples.”
The companies collectively operate 11 rigs, primarily focused on the Delaware Basin.
“The combined entity plans to allocate at least one of Earthstone’s two rigs currently active in the Midland Basin to the Delaware,” the report stated.
Over the course of the next year, the combined company hopes to allocate the majority of its capital to high-rate-of-return projects in the Delaware Basin. It will initially prioritize Lea, Eddy, Reeves and Ward Counties. The remaining 10% will go to the Midland basin.