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Colgate Energy's owners are planning to go public

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A four-year-old “IPO silence” from the Permian Bains’ operators is about to be broken: Colgate Energy Partners III LLC is reportedly planning to float the shale oil producer on the stock market. This would be the first major IPO for a U.S. oil producer since 2017.

Colgate Energy is a privately held oil and natural gas company based in Midland, Texas. Founded in 2015 with support from Pearl Energy Investments and NGP, the company made several noteworthy acquisitions this year that have significantly boosted its position in the Permian's Delaware Basin.

The move is likely motivated by a rise in energy prices, as economies emerge from pandemic lockdowns caused by COVID-19, resulting in attractive corporate valuations after years of underperformance in the oil patch.

According to sources, in an IPO slated for the middle of 2022, Pearl Energy Investments and NGP, the companies that own Colgate Energy Partners III, are partnering with Credit Suisse Group AG on getting the company ready. And while the numbers pertaining to the valuation of the IPO are not disclosed, Reuters as well as our own sources speculated that the sum could approach $5 billion, including debt.

Colgate may also explore the possibility of selling its business. However, nothing is finalized yet and the company could also continue to operate independently as a private company with strong cash flow.

Following Vine Energy's IPO earlier in 2021, the IPO would be the first major offering in the Permian Basin since Jagged Peak Energy's IPO in January 2017.

Meanwhile, Colgate has an estimated net production of 62,000 boe/d in the Permian Basin, pending a planned acquisition announced in early November, with a position covering approximately 108,000 net acres mainly within Reeves and Ward counties in Texas and Lea County in New Mexico.

The company expects to close its acquisition in the first quarter of 2022. About 22,000 net acres were acquired directly from the seller in an undisclosed deal worth $190 million in New Mexico's Eddy and Lea counties, directly offsetting Colgate's existing holding.

Furthermore, the company has already completed two major acquisitions in the past six months: Colgate purchased Luxe Energy from Occidental Petroleum Corp. in June, followed by the acquisition of Reeves and Ward County acreage from Occidental Petroleum in July for $508 million in cash.

Investors’ confidence in the sector is returning as U.S. crude prices hit their highest in seven years late last year S&P energy index delivered roughly twice the return of the S&P 500 in 2021.

The Permian Basin, in particular, is set to achieve record output in January, thanks to supporting commodity prices for companies such as Colgate.

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$7 Billion Merger of Colgate and Centennial, the 2 Largest Permian Operators

Despite the circulating rumors concerning Colgate’s attempt to launch an IPO, on May 19 the company decided to combine with Centennial Resource Development Inc. This merger of equals is estimated at $7 billion and will found the biggest pure-play E&P company in the Delaware Basin of the Permian. The transformative combination essentially enlarges companies’ potential and hastens the growth across all financial and operating metrics. According to Centennial CEO Sean Smith, the combined company is anticipated to furnish shareholders with quickened capital return program due to a fixed dividend coupled with a share repurchase plan. Due to a recent report, the merger would increase production 7%, to 145,000 boe/d by the fourth quarter would further ratchet up next year. By third-quarter 2023, the company predicted 160,000 boe/d based on a drilling program of 140 wells per year. Colgate Energy was reported to be getting an IPO last December that sources said would value the company at approximately $4 billion. The combined company will have over 15-years of drilling inventory, assuming its current drilling pace, the companies will produce over $1 billion of free cash flow in 2023 at current strip prices.

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