PDC Energy, SRC Energy Combine in $1.7 Billion All-Stock Transaction

PDC Energy and SRC Energy — both of which are headquartered in Denver — entered into a definitive merger agreement under which PDC will acquire SRC in an all-stock transaction valued at approximately $1.7 billion. This includes SRC’s net debt of approximately $685 million as of June 30, 2019. Under the terms of the agreement, SRC shareholders will receive a fixed exchange ratio of 0.158 PDC shares for each share of SRC common stock, representing an implied value of $3.99 per share based on the PDC closing price as of August 23, 2019.

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

According to the two companies there are a number of reasons for the consolidation. This includes a material increase in PDC's scale; an increase in the company's joint free cash flow profile with an enhanced ability to return capital to shareholders; it creates a low-cost mid-cap oil and natural gas producer; it increases the combined company's balance sheet; and is expected to be immediately accretive to key 2020 metrics such as free cash flow per share, cash return on capital invested, net asset value, and more. 

“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,” says Bart Brookman, president and CEO of PDC. “With an even more competitive cost structure, including peer-leading G&A and LOE per Boe, the combined company will have the financial flexibility and sustainable free cash flow to return significant capital to shareholders and capitalize on additional growth opportunities.”

The companies emphasized that this would create a leading Colorado energy producer.

On a pro forma basis, PDC will have approximately 182,000 consolidated Core Wattenberg net acres, of which nearly 100% is located in Weld County, Colorado. The consolidated footprint will enable an efficient, clearly-communicated long-term development plan with a focus on minimizing surface usage through capital efficient long-laterals and continued emphasis on eliminating trucking, as over 95% of anticipated oil production will be transported via pipeline.

Approximately 80% of the pro forma gross acreage position is in unincorporated rural Weld County, while the remaining 20% is located within Weld County local municipal boundaries, with the city of Greeley accounting for approximately half of that total. PDC commits to continue its investment in its community-focused programs while actively engaging with local communities, regulators and elected officials to safely and responsibly develop its leasehold position. Approximately half of municipal permits submitted have received local approval, with the remaining in process.

Lynn A. Peterson, CEO and chairman of the board of SRC Energy, says, “I am proud of the SRC team and the high-quality acreage and low-cost operations we have built together. We believe that this transaction will establish the combined company as a leader in the Colorado energy industry."

According to industry analyst, Andrew Dittmar, senior M&A analyst at energy data analytics company Enverus, “This deal looks to be right down the fairway for the consolidation needed among small-to-mid cap E&Ps [exploration and production companies] to help push towards strengthened financial metrics and restore investor confidence in a very challenging market." 

Dittmar says that the deal checks "all the boxes Wall Street has asked for including consolidation of duplicate corporate structures, sticking to a basin the buyer knows well and not overpaying on premium," and adds that in the future, "The test will be how investors react with the deal in front of them. A positive reaction could help spur further deals of this type which is almost certainly healthy for the overall shale industry.”

About PDC Energy, Inc.

PDC Energy, Inc. is a domestic independent exploration and production company that acquires, produces, develops, and explores for crude oil, natural gas and NGLs with operations in the Wattenberg Field in Colorado and the Delaware Basin in West Texas. Its operations are focused on the liquid-rich horizontal Niobrara and Codell plays in the Wattenberg Field and the liquid-rich Wolfcamp zones in the Delaware Basin.

About SRC Energy, Inc.

SRC Energy, Inc. is a Denver based oil and natural gas exploration and production company. SRC's core area of operations is in the Greater Wattenberg Field of the Denver-Julesburg Basin of Colorado.