Civitas Resources to acquire oil and gas producer Crestone

(Reuters) -Civitas Resources Inc, being formed through the merger of Bonanza Creek Energy Inc and Extraction Oil & Gas Inc, said Monday it will buy peer Crestone Peak Resources to create a Colorado-focused oil and gas producer worth around $4.5 billion.

The merger between Bonanza Creek and Extraction, announced last month, will create the largest exploration and production company focused on Colorado’s Denver-Julesburg (DJ) Basin.

Taking over Crestone, also active in Colorado, will further expand that footprint. Monday’s statement, confirming an earlier Reuters report, said the combined entity would produce around 160,000 barrels of oil equivalent per day.

Civitas will use 22.5 million Bonanza Creek shares to pay Crestone’s owners, including the Canada Pension Plan Investment Board (CPPIB) and investment firm The Broe Group, giving them 26% of the overall company.

Sources told Reuters the deal values Crestone, formed in 2016 when CPPIB and Broe acquired assets from Encana Oil & Gas, at around $1.3 billion including debt.

Shares in Bonanza Creek and Extraction were 1.2% and 1% higher, respectively, in mid-morning trading.

“We are actively building one of the most durable and profitable producers in the DJ Basin,” said Eric Greager, chief executive officer of Bonanza Creek.

Consolidation in the DJ basin is intensifying as energy producers grapple with regulatory restrictions in Colorado on where and how they can drill.

Last month, Bonanza Creek and Extraction said their merger would create Colorado’s first carbon neutral oil and gas producer.

Extraction’s largest shareholder is investment firm Kimmeridge Energy Management, which has been pushing for measures to improve the shale industry’s green credentials, including putting forward the creation of a carbon trading platform for the U.S. oil and gas industry.

The Crestone deal, expected to close immediately after the Bonanza/Extraction tie-up in the fall, will result in annual dividend payments of around $1.85 per share, up from $1.60 under the original Civitas agreement, the statement added.

Bonanza Creek and Extraction were advised by JPMorgan Chase & Co and Petrie Partners respectively. Jefferies and TD Bank assisted Crestone.

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