Centennial Resource, Colgate Energy to combine in merger of equals

Centennial Resource Development and Colgate Energy Partners III announced they have entered into an agreement to combine in a merger of equals transaction. The combined company will be the largest pure-play E&P company in the Delaware Basin with approximately 180,000 net leasehold acres, 40,000 net royalty acres and total current production of approximately 135,000 Boe/d. The combined company plans to leverage its high-quality, scaled asset base to drive leading shareholder returns. Key Highlights: High-quality, complementary asset base with differentiated inventory depth to support sustainable free cash flow growth; Positioned to significantly increase cash returns to shareholders, with over $1 billion of expected free cash flow in 2023 at current strip prices; Highly accretive to key financial metrics, including cash flow, free cash flow and net asset value per share; Strong balance sheet with expected leverage below 1.0x at year-end 2022; Sean Smith to serve as Executive Chair of the Board; Will Hickey and James Walter to serve as Co-CEOs; Significant equity ownership of combined management team aligns with shareholders; Shared commitment to prioritizing ESG with continued focus on reducing environmental impact. The approximately $7.0 billion merger of equals values Colgate at approximately $3.9 billion and is comprised of 269.3 million shares of Centennial stock, $525 million of cash and the assumption of approximately $1.4 billion of Colgate's outstanding net debt. Given existing cash balances and interim free cash flow, the company expects its net debt-to-LTM EBITDAX ratio at closing to be approximately 1.0x. The cash consideration and the repayment of Colgate's outstanding credit facility borrowings at closing are expected to be funded with cash on hand and borrowings under an upsized revolving credit facility. The transaction has been unanimously approved by the Boards of Directors of both companies and is expected to close in the second half of 2022. The company intends to provide detailed forward-looking guidance for the remainder of 2022 at or shortly after closing of the transaction. Upon closing, Sean Smith will serve as Executive Chair of the Board of Directors of the newly combined business, and Will Hickey and James Walter will lead the company as Co-CEOs and will serve on the Board of Directors. Matt Garrison, Centennial's current Chief Operating Officer, and George Glyphis, Centennial's current Chief Financial Officer, will continue to serve in their respective roles at the combined company. The combined company will be headquartered in Midland, with key positions filled by representatives from both companies. The Denver office will remain open for the foreseeable future to ensure continuity and continued operational success. The combined company will operate under a new name and stock ticker symbol, which are expected to be announced prior to closing. Following the merger, Centennial's Board of Directors will be expanded to eleven directors, consisting of Sean Smith, Will Hickey, James Walter, William Quinn and Robert Tichio, in addition to six independent directors. Immediately following the closing, existing Centennial shareholders will own approximately 53% of the combined company, and existing Colgate owners will own approximately 47% of the combined company. Centennial's largest shareholder, Riverstone, which currently owns approximately 25% of Centennial's outstanding shares, has executed a Voting and Support Agreement in connection with the transaction. The closing of the merger is subject to customary closing conditions, including approval by Centennial shareholders and regulatory approvals.