The completion of the merger between Centennial Resource Development Inc. and Colgate Energy Partners II LLC happened on Sept. 1, sealing the debut of Permian Resources Corp., which is considered the largest pure-play E&P company in the Delaware Basin.
Permian Resources' idea was to combine two successful E&P companies, creating a better, stronger, and more strategically compelling company. Centennial and Colgate announced an agreement to merge in May, denying rumors that Colgate, a privately held independent Midland-based company, had been seeking an IPO.
The merger estimated Colgate at about $3.9 billion and consists 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.
Permian Resources, being the combined company, has a deep inventory of “high-quality” drilling locations on around 180,000 net acres the companies anticipate will provide more than $1 billion of free cash flow in 2023 at current strip prices, in accordance with the company release on Sept. 1.
It is important to notice, that Permian Resources co-CEOs Hickey and James Walter own about 6% of total shares outstanding, representing one of the highest CEO ownership levels in the industry. Additionally, Permian Resources employees together own over 13% of the company.
Since its establishment, Colgate has earned about $1 billion in announced deals. Backed by Pearl Energy Investments and NGP, Colgate was announced to be considering an IPO last December that some sources said would estimate the company at around $4 billion.
Permian Resources is now operating an eight-rig drilling program and anticipates decreasing it to a seven-rig program in November. The development program is expected to maintain the production of 140,000 to 150,000 boe/d (about 52% oil) during the fourth quarter.
During 2023, Permian Resources expects its operating activity to be divided relatively evenly between New Mexico and Texas. The company considers beginning next year operating a seven-rig drilling program with the potential to decrease its rig count during the year, assuming expected operational efficiencies are completed.
Permian Resources is targeting annual corporate synergies of approximately $65 million, equating to more than $450 million of total net present value over the next ten years.
The variable return program is structured to distribute at least 50% of free cash flow after the base dividend through a variable dividend, share repurchases, or a combination of both. The compilation between variable dividends and share repurchases will be dependent upon market conditions during a given quarter.
Furthermore, the company expects to initiate a quarterly base dividend of $0.05 per share that the company considers is supported below $40/bbl WTI during a multiyear period. The quarterly base dividend is anticipated to be formally declared and paid starting in the fourth quarter of 2022.
