Current CDEV Stock Info

$855 million purchase gives Centennial about 77,000 acres in one of America’s hottest oil plays

Denver-based Centennial Resource Development (ticker: CDEV) announced Monday that it has agreed to acquire 100% of the leasehold interests and related upstream assets from Silverback Exploration. Privately-held Silverback’s 35,000 net acres (44,000 gross) of Delaware Basin assets directly offset Centennial’s existing acreage, and are currently producing 3.5 MBOEPD.

CDEV will pay $855 million in cash for the assets, according to the company’s press release.

Centennial Resource Development acreage and Silverback acreage in the Delaware Basin

Source: Centennial Resource Development

In connection with Monday’s acquisition, Centennial also announced that its private equity backer, Riverstone Holdings, committed to invest up to $500 million in combination of CDEV common and convertible preferred shares at the common equivalent of $14.54 per share, subject to adjustment. Holders of the preferred shares are not entitled to a preferred dividend, but the shares will have a liquidation preference of $0.0001 per share, according to Centennial. Preferred stockholders will be entitled to participate with common stockholders in distributions upon liquidation.

The company plans to finance the remainder of the deal through debt and/or equity financing, but is still expected to have a strong balance sheet following the deal. The company had no outstanding debt as of October 11, 2016, and is expected to have debt-to-EBITDA of less than 2.5x following the deal according to a note from Stephens.

Assuming a price of $40,000 per flowing BOE, Centennial paid roughly $20,000 per acre in Monday’s acquisition. On a per-acre basis, the Silverback acquisition comes in lower than several other Delaware Basin deals, which have pushed above $30,000 per acre as operators look to gather acreage in what many are calling the USA’s most desirable oil play.

Deal metrics of Silverback acquisition compared to others in the Delaware Basin from Centennial Resource Development

Source: Centennial Resource Development

“We did not expect to make such a significant acquisition so quickly,” said Centennial Resource Development CEO Mark Papa, whose Silver Run Acquisition Corp. purchased Centennial Resource Production and formed CDEV in July, said Monday. “[But] we could not pass up the opportunity to accretively add core acreage offsetting our existing Centennial assets at such a compelling price.”

Centennial quickly becomes one of the largest Delaware basin operators

“Pro forma for the transaction, Centennial will be one of the largest operators in the Delaware basin, with over 77,000 contiguous net acers,” Papa continued. “This transaction increases our horizontal drilling inventory by 44% and more than doubles our inventory of extended length laterals, which we believe provides the most capital efficient development.”

Silverback acquisition increases Centennial’s mid-term production target to 50 MBOPD

Centennial believes that the Silverback acreage offers at least 600 horizontal drilling locations assuming 880 foot spacing prospective for the Upper Wolfcamp A (210 locations), Lower Wolfcamp A (180 locations) and Wolfcamp B (220 locations). The Wolfcamp C and Avalon/Bone Spring horizons could offer even more potential upside, notes Stephens.

The company’s strong balance sheet, and the addition of Silverback’s assets should give the company room to grow into its new position as one of the Delaware Basin’s largest operators. CDEV increased its oil production goal for 2020 in connection with Monday’s deal to 50 MBOPD from 30 MBOPD. The company will increase the number of rigs it plans to use to 5.5 in 2017 and 8.5 in 2018, compared to 4 and 5 rigs respectively in its previous plans.

Centennial Resource Development acquires Silverback

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