Page 5 - NorthAmOil Week 21 2022

NorthAmOil COMMENTARY NorthAmOil

asset base to drive leading shareholder returns”, having to test a challenging IPO market for
illustrating that this deal has the same drivers as upstream companies while Centennial materi-
many other recent shale deals. ally boosts scale including more than doubling
“The combined company will have a production and acreage at a fair price,” Enverus’
high-margin, low-cost asset base with an exten- director, Andrew Dittmar, was cited by Reuters
sive portfolio of high-rate-of-return inventory,” as saying this week.
Centennial’s CEO, Sean Smith, told analysts. Indeed, had Colgate proceeded with an IPO,
“Importantly, this merger of equals is expected it would have been the first major IPO of a US
to be accretive to all relevant metrics, including oil producer since 2018. Despite the market
cash flow and free cash flow per share and net improving, especially over recent months, and
asset value. On top of that, we expect the com- various private operators considering the IPO
bined business to generate over $1bn of free cash route, they continue to hold back.
flow in 2023, assuming current strip prices.” Public-buys-private deals, on the other
Similar expectations were echoed in the press hand, remain popular and have represented a
release, where Centennial said the combined significant proportion of recent shale industry
company was expected to provide shareholders consolidation as private equity investors have
with an “accelerated capital return programme sought to exit the market at a time of high crude By merging with
through a fixed dividend coupled with a share prices and company valuations. This has played
repurchase plan”. out across a number of regions – the Permian Centennial,
The combined company will operate under a continues to dominate the US shale industry, Colgate will
new name and stock ticker, which have yet to but prolific gas-producing plays including the
be announced. The transaction is anticipated to Haynesville shale and the Appalachian Basin achieve a public
close in the second half of 2022. has also seen public companies snap up major
private producers. listing without
Going public Dittmar described the Centennial-Colgate
News of the deal comes after private equi- tie-up as one of the more obvious public-private going through an
ty-backed Colgate had considered listing on the combinations available, with complementary IPO.
stock market according to various reports over assets. Colgate had also grown over the past year
recent months. Sources cited in those reports, an via purchases of assets from Occidental Petro-
initial public offering (IPO) was also expected to leum and Luxe Energy.
fetch close to $4bn. Subsequent reports from It remains to be seen when the wave of
early this year said Colgate was weighing its shale consolidation will come to an end, but
options after also being approached by another this merger makes it clear that the trend is not
company over a potential sale. over yet. Higher crude prices have not altered
However, by merging with Centennial, Col- the shale industry’s focus on building scale
gate will achieve a public listing without going and boosting returns to shareholders. For
through an IPO. now, at least, such opportunities to build scale
“Colgate achieves a public listing without are still available.™

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