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Centennial Resource Development and PE-backed Colgate Energy to merge

Centennial Resource Development Inc and Colgate Energy, which is backed by Pearl Energy Investments and Natural Gas Partners, have agreed to merge.

Centennial Resource Development Inc and Colgate Energy, which is backed by Pearl Energy Investments and Natural Gas Partners, have agreed to merge. The newly combined company will be an E&P company in the Delaware Basin. The $7 billion merger puts Colgate at a valuation of about $3.9 billion. The deal is expected to close in the second half of 2022.

PRESS RELEASE

DENVER and MIDLAND, Texas, May 19, 2022 (GLOBE NEWSWIRE) — Centennial Resource Development, Inc. (“Centennial” or the “Company”) (NASDAQ: CDEV) and Colgate Energy Partners III, LLC (“Colgate”) today 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 flow1 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 leverage2 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

Management Commentary
“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,” said Sean Smith, Chief Executive Officer of Centennial. “Importantly, the combined company is expected to provide shareholders with an accelerated capital return program through a fixed dividend coupled with a share repurchase plan. We are excited to partner with Colgate as we share a common vision for the pro forma company that includes a strong balance sheet, a disciplined investment program to drive cash flow and a robust return-of-capital program.”

“The Colgate and Centennial teams have each demonstrated a track record of execution through the years, and we are excited to assume leadership roles in the new company to build upon that success and guide the next phase of value creation. Both companies have established strong financial and operational cultures, and we expect the combined company will be a top-tier, low-cost operator that is able to deliver better margins and shareholder returns,” said Will Hickey, Co-CEO of Colgate.

“The merger of Colgate and Centennial is compelling from a financial, operational and strategic standpoint, establishing a leading Permian Basin independent. We believe the pro forma company is positioned to maximize returns for our new investor base, with our combined management team bringing a track record of operational excellence and strategic value creation. Management’s significant ownership in the combined company should give investors confidence that long-term value creation will always be our top priority,” said James Walter, Co-CEO of Colgate.

Transaction Details
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.