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Centennial Resource Development Inc. (NASDAQ: CDEV) will nearly double its Delaware Basin position in a buyout of E&P Silverback Exploration LLC’s 35,000 net acres, Centennial said Nov. 28.
Centennial will pay $855 million for the acreage and 3,500 barrels of oil equivalent per day (boe/d) of production in Reeves County, Texas. San Antonio-based Silverback and Riverstone Holdings LLC initially struck the deal on Nov. 21, but purchase rights were subsequently assigned to Denver-based Centennial. Riverstone owns 51% of Centennial as of October.
The acreage taps into the Wolfcamp A and Wolfcamp B formations with additional upside potential from the Wolfcamp C, Avalon and Bone Spring formations, Centennial said.
Mark Papa, Centennial’s CEO, said the company didn’t expect to make “such a significant acquisition so quickly,” but the company couldn’t pass up the opportunity to accretively add core, adjacent acreage that offsets its assets at a compelling price.
“Pro forma for the transaction, Centennial will be one of the largest operators in the Delaware Basin,” Papa said.
The transaction also increases company production goals to 50 Mbbl/d of oil from 30 Mbbl/d by 2020 while maintaining low debt levels
In October, Silver Run Acquisition Corp. purchased an 89% controlling interested in Centennial, which Papa now heads. Papa is the former CEO of EOG Resources Inc. (NYSE: EOG).
Scott Hanold, an analyst for RBC Capital Makerts LLC, said the transaction works out to about 20,000 per acre, “slightly below more recent core Delaware Permian transactions” though similar to acreage deals that trend more to the west and middle of the basin.
Recent Delaware Basin transactions include:
- Concho Resources Inc. (NYSE: CXO): $21,000/acre in Lea and Eddie counties, N.M. (core acreage at $30,000 and rest at $5,000).
- Occidental Petroleum Corp. (NYSE: OXY): $44,500/acre in Reeves and Pecos counties.
- RSP Permian (NYSE: RSPP): $44,500/acre in Loving and Winkler counties, Texas.
- Resolute Energy Corp. (NYSE: REN): $27,000/acre in Reeves County.
- PDC Energy (NASDAQ: PDCE): $20,000/acre in Reeves and Culberson counties.
- Diamondback Energy (NASDAQ: FANG): $26,000/acre in Reeves and Ward counties.
Centennial said some third parties have the right, exercisable within 30 days of receipt of a notice of Centennial’s acquisition, to acquire up to 80% of 10,000 net acres within the 35,000 net acres at the purchase price paid by Centennial.
Riverstone and affiliated funds have committed to invest up to $500 million in a combination of CDEV common and convertible preferred shares at the common equivalent of $14.54 per share, subject to adjustment, Centennial said.
The preferred shares will be convertible into common shares upon the approval of the company's stockholders at a special meeting. Centennial intends to finance the remainder of the purchase price through either equity or debt financings or a combination of the two.
The acquisition is expected to close on Dec. 30.
Weil, Gotshal & Manges LLP served as legal counsel to Centennial. Latham & Watkins LLP was legal counsel to Riverstone. Tudor, Pickering, Holt & Co. acted as financial adviser to Silverback. Kelly Hart & Hallman LLP was legal adviser to Silverback.
Darren Barbee can be reached at dbarbee@hartenergy.com.
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