Two Denver oil firms merge in $1.7 billion deal

PDC Energy, Inc. in Denver announced it is merging with another Denver-based firm, SRC Energy, Inc. in a $1.7 billion agreement.

PDC is acquiring SRC in an all-stock transaction including nearly $685 million in SRC’s net debt. Under the agreement, SRC shareholders will received a fixed exchange ratio of 0.158 PDC shares for each share of SRC common stock It represents an implied value of $3.99 per share based on the PDC closing price as of August 23, 2019.

The transaction is expected to close in the fourth quarter of 2019 and has been unanimously approved by each company’s board of directors.

The acquisition will increase PDC’s scale with a consolidated, contiguous Core Wattenberg leasehold position of nearly 182,000 net acres located entire in Weld County. It has second quarter 2019 total production of nearly 200,000 barrels of oil equivalent a day. The combined company is now the second largest producer in the DJ basin.

PDC estimates the pro forma free cash flow will be nearly $800 million from the third quarter of 2019 through year-end 2021, assuming $55 a barrel NYMEX.

 

“SRC’s complementary, high-quality assets in the Core Wattenberg, coupled with our existing inventory and track record of operational excellence will create a best-in-class operator with the size, scale and financial positioning to thrive in today’s market,” said Bart Brookman, President and Chief Executive Officer of PDC. “We remain committed to our core Delaware Basin acreage position and are confident the combined company with its multi-basin focus will be well-positioned to deliver superior shareholder returns.”

The expanded footprint in Weld County will result in more oil transported by pipeline rather than by truck. Based on PDC’s planned 2020 Wattenberg activity level of three drilling rigs, the transaction will increase PDC’s Wattenberg inventory life to greater than ten years with additional upside should PDC implement SRC’s spacing assumptions to portions of its pro forma position.