PDC Energy, Inc. ("PDC" or the "Company")
(NASDAQ: PDCE) and SRC Energy, Inc. (“SRC”) (NYSE: SRCI) today
announced they have entered into a definitive merger agreement
under which PDC will acquire SRC in an all-stock transaction valued
at approximately $1.7 billion, including 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.
Key Transaction Highlights:
- Materially increases PDC’s scale with a consolidated,
contiguous Core Wattenberg leasehold position of approximately
182,000 net acres located entirely in Weld County and pro forma
second quarter 2019 total production of nearly 200,000 barrels of
oil equivalent (“Boe”) per day (166,000 Boe per day in the
Wattenberg). On a pro forma basis, the combined company is the
second largest producer in the DJ basin. Coupled with its
approximate 36,000 net acre Delaware Basin position, the Company
will have core assets in two of the premier U.S. onshore
basins.
- Materially enhances free cash flow profile and enhances ability
to return additional capital to shareholders. Pro forma free
cash flow is estimated to be approximately $800 million from the
third quarter of 2019 through year-end 2021, assuming $55 per
barrel NYMEX. PDC has increased and extended its existing share
repurchase program from $200 million to $525 million, with a target
completion date of year-end 2021. Year-to-date, PDC has
repurchased $125 million of its shares and plans to utilize
approximately 50 percent of the estimated $800 million of free cash
flow in the same period to complete the remaining $400 million
repurchase program.
- Creates a low-cost mid-cap producer with anticipated
peer-leading G&A of approximately $2.00 per Boe in 2020. PDC
expects to realize approximately $40 million of G&A savings in
2020 with an incremental $10 million of G&A synergies in 2021,
after the completion of its integration plan.
- All-stock transaction ensures the combined company will have a
strong balance sheet with a pro forma leverage ratio of 1.3x at
June 30, 2019 and projected leverage ratio of approximately 1.0x at
year-end 2020, assuming $55 per barrel NYMEX.
- The transaction is expected to be immediately accretive to key
2020 metrics, including: free cash flow per share, cash return on
capital invested (“CROCI”), net asset value, G&A per Boe, LOE
per Boe, leverage ratio and inventory life.
CEO Commentary
“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. 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.”
Brookman continued, “Importantly, this transaction will join two
organizations grounded in strong core values and a shared
commitment to responsible and safe operations. Both PDC and SRC
have deep regulatory and community relationships, and together we
will continue to prioritize the health and safety of our employees
and stakeholders, as well as the environment and the communities in
which we live and operate. We look forward to working with SRC to
integrate these two companies and achieve our shared
objectives.”
Lynn A. Peterson, Chief Executive Officer and Chairman of the
Board of SRC Energy commented, “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. The
transaction also provides SRC shareholders with the opportunity to
participate in the significant upside potential created by a
larger-scale DJ Basin producer with complementary assets in the
prolific Delaware Basin. We look forward to working closely with
PDC to ensure that the full potential of this combination is
realized for the benefit of all of our stakeholders."
Strategic and Financial Benefits of the
Combination
- Creates 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 percent 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 percent of anticipated oil production will be
transported via pipeline. Approximately 80 percent of the pro
forma gross acreage position is in unincorporated rural Weld
County, while the remaining 20 percent 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.
- Enhances Size and Scale. Including both the DJ
and Delaware Basin, the pro forma company has year-end 2018 SEC
proved reserves of approximately 850 MMBoe and expects to exit 2019
producing approximately 200,000 Boe per day. Anticipated 2019
Wattenberg production of approximately 166,000 Boe per day will
make the combined company one of the largest producer in the DJ
Basin and strengthens its relationships with service and midstream
providers. 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.
- Improves Free Cash Flow Profile.
The transaction is expected to be
immediately accretive to PDC’s free cash flow and free cash flow
per share in 2020. Assuming $55 per barrel NYMEX oil, the pro
forma company expects to generate approximately $800 million of
free cash flow between the second half of 2019 and year-end
2021. Approximately half of this sum is expected to be
returned to shareholders through the increased share repurchase
program, which has a target completion date of year-end 2021. The
remaining free cash flow will provide the flexibility to pay down
debt, return incremental capital to shareholders and capitalize on
accretive growth opportunities.
- Drives Significant Corporate Synergies. PDC
expects the combination to generate significant corporate synergies
including annual G&A savings of approximately $50
million. PDC expects to realize approximately $40 million of
G&A savings in 2020, resulting in an anticipated pro forma 2020
G&A of approximately $2.00 per Boe. Following an integration
period, the PDC expects an incremental $10 million of G&A
synergies in 2021. Additionally, PDC anticipates its pro
forma margins per Boe will improve following the completion of the
transaction as it expects to benefit from an oilier production mix,
lower G&A per Boe and slightly improved LOE per Boe.
- Maintains Strong Balance Sheet and Financial
Flexibility. The pro forma company will maintain a
strong, through-cycle balance sheet with pro forma leverage of 1.3x
as of June 30, 2019 and an estimated year-end 2020 leverage ratio
of approximately 1.0x. PDC expects to have ample liquidity on its
pro forma borrowing base after closing. PDC’s increased scale and
conservative financial profile, is expected to enhance its credit
profile and decrease its overall cost of capital.
Preliminary Pro Forma 2020 Outlook
PDC’s long-term strategy is to be a low-cost operator that
generates and returns free cash flow to shareholders, while
delivering solid production and cash flow growth on a debt-adjusted
per share basis. In 2020, PDC plans to invest between $1.2
billion and $1.4 billion to operate three Wattenberg and two
Delaware Basin drilling rigs. The plan is expected to
generate approximately $275 million in free cash flow assuming $55
per barrel and $2.70 per Mcf NYMEX oil and gas prices,
respectively, with full-year production averaging between 200,000
and 220,000 Boe per day. Finally, PDC expects its combined
G&A and LOE to be less than $5 per Boe.
Transaction Details
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 they own, representing an implied value of $3.99 per
SRC share based on PDC’s closing common stock price on August 23,
2019, or $1.7 billion in the aggregate including the assumption of
approximately $685 million in debt. The consideration represents a
premium of 6.8 percent to the 30-day average exchange ratio of
0.148x. Upon closing of the transaction, PDC shareholders will own
approximately 62 percent of the combined company, and SRC
shareholders will own approximately 38 percent, on a fully diluted
basis. The all-stock transaction is intended to be tax-free to SRC
shareholders.
Governance and Leadership
Upon closing, PDCs’ board of directors will be expanded to nine
directors, expected to include two members from the SRC board of
directors. PDC’s board of directors also plans to form a
three-member group focused on integration planning and
opportunities for ongoing corporate synergies and cost
efficiencies. The combined company will be led by PDC’s executive
management team and will remain headquartered in Denver,
Colorado.
Timing and Approvals
The transaction, which is expected to close in the fourth
quarter of 2019, is subject to customary closing conditions and the
satisfaction of certain regulatory approvals, including the
approval of PDC and SRC shareholders.
Advisors
J.P. Morgan is serving as exclusive financial advisor to PDC,
and Wachtell, Lipton, Rosen & Katz is serving as PDC’s legal
counsel. Citi and Goldman Sachs & Co. are serving as financial
advisors to SRC and Akin Gump Strauss Hauer & Feld LLP is
serving as its legal counsel.
Joint Conference Call Information
The Company invites you to join senior management from both PDC
Energy and SRC Energy for an investor call on Monday, August 26,
2019, to discuss the key details and benefits of this transaction.
The related slide presentation will be available on PDC's website
at www.pdce.com.
Conference Call and Webcast:Date/Time: Monday, August 26, 2019,
8:00 a.m. ET/ 6:00 a.m. MTWebcast available at:
www.pdce.comDomestic (toll free): (877) 312-5520International:
(253) 237-1142Conference ID: 6182398
Upcoming Investor Presentations
PDC is scheduled to attend the: Barclay’s CEO Energy
Conference in New York on Wednesday, September 4; and the Johnson
Rice Energy Conference in New Orleans on Tuesday, September 24,
2019. Presentation materials will be posted to the Company’s
website, www.pdce.com, prior to the start each conference.
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. More company
news and information about SRC is available
at www.srcenergy.com.
Additional Information and Where to Find it
This document does not constitute an offer to buy or sell or the
solicitation of an offer to buy or sell any securities or a
solicitation of any vote or approval. This communication relates to
a proposed business combination between PDC and SRC. In connection
with the proposed transaction, PDC intends to file with the
Securities and Exchange Commission (the “SEC”) a registration
statement on Form S-4 that will include a joint proxy
statement of PDC and SRC that also constitutes a prospectus of PDC.
Each of PDC and SRC also plan to file other relevant documents with
the SEC regarding the proposed transaction. No offering of
securities shall be made except by means of a prospectus meeting
the requirements of Section 10 of the U.S. Securities Act of
1933, as amended. Any definitive joint proxy statement/prospectus
of PDC and/or SRC (if and when available) will be mailed to
shareholders of PDC and/or SRC, as applicable. INVESTORS AND
SECURITY HOLDERS OF PDC AND SRC ARE URGED TO READ THE REGISTRATION
STATEMENT, JOINT PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS
THAT MAY BE FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY IF
AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security
holders will be able to obtain free copies of these documents (if
and when available) and other documents containing important
information about PDC and SRC, once such documents are filed with
the SEC through the website maintained by the SEC at
http://www.sec.gov. Copies of the documents filed with the SEC by
PDC will be available free of charge on PDC’s website at
http://www.pdce.com or by contacting PDC’s Senior Director of
Investor Relations by email at michael.edwards@pdce.com , or by
phone at 303-860-5820. Copies of the documents filed with the
SEC by SRC will be available free of charge on SRC’s website at
http://www.srcenergy.com or by contacting SRC’s Investor Relations
Manager by email at jrichardson@srcenergy.com, or by phone
at 720-616-4308.
Certain Information Concerning Participants
PDC, SRC and certain of their respective directors and executive
officers may be deemed to be participants in the solicitation of
proxies in respect of the proposed transaction. Information about
the directors and executive officers of PDC is set forth in PDC’s
proxy statement for its 2019 annual meeting of stockholders, which
was filed with the SEC on April 17, 2019. Information about the
directors and executive officers of SRC is set forth in its proxy
statement for its 2019 annual meeting of shareholders, which was
filed with the SEC on March 28, 2019. These documents can be
obtained free of charge from the sources indicated above. Other
information regarding the participants in the proxy solicitations
and a description of their direct and indirect interests, by
security holdings or otherwise, will be contained in the joint
proxy statement/prospectus and other relevant materials to be filed
with the SEC when such materials become available. Investors should
read the joint proxy statement/prospectus carefully when it becomes
available before making any voting or investment decisions. You may
obtain free copies of these documents from PDC or SRC using the
contact information indicated above.
Cautionary Statement Regarding Forward-Looking
Information
This document contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
All statements, other than historical facts, that address
activities that PDC or SRC assumes, plans, expects, believes,
intends or anticipates (and other similar expressions) will, should
or may occur in the future are forward-looking statements. The
forward-looking statements are based on management’s current
beliefs, based on currently available information, as to the
outcome and timing of future events, including this proposed
transaction. These forward-looking statements involve certain risks
and uncertainties that could cause the results to differ materially
from those expected by the management of PDC or SRC. These include
the expected timing and likelihood of completion of the proposed
transaction, including the timing, receipt and terms and conditions
of any required governmental and regulatory approvals of the
proposed transaction that could reduce anticipated benefits or
cause the parties to abandon the proposed transaction, the ability
to successfully integrate the businesses, the occurrence of any
event, change or other circumstances that could give rise to the
termination of the merger agreement, the possibility that
stockholders of PDC or shareholders of SRC may not approve the
proposed transaction, the risk that the parties may not be able to
satisfy the conditions to the proposed transaction in a timely
manner or at all, risks related to disruption of management time
from ongoing business operations due to the proposed transaction,
the risk that any announcements relating to the proposed
transaction could have adverse effects on the market price of PDC’s
securities or SRC’s securities, the risk of any unexpected costs or
expenses resulting from the proposed transaction, the risk of any
litigation relating to the proposed transaction, the risk that the
proposed transaction and its announcement could have an adverse
effect on the ability of PDC and SRC to retain customers and retain
and hire key personnel and maintain relationships with their
suppliers and customers and on their operating results and
businesses generally, the risk the pending proposed transaction
could distract management of both entities and they will incur
substantial costs, the risk that problems may arise in successfully
integrating the businesses of the companies, which may result in
the combined company not operating as effectively and efficiently
as expected, the risk that the combined company may be unable to
achieve synergies or other anticipated benefits of the proposed
transaction or that it may take longer than expected to achieve
those synergies or benefits and other important factors that could
cause actual results to differ materially from those projected. All
such factors are difficult to predict and are beyond PDC’s or SRC’s
control, including those detailed in PDC’s Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K that are available on its
website at http://www.pdce.com and on the SEC’s website at
http://www.sec.gov, and those detailed in SRC’s Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K that are available on SRC’s
website at http://www.srcenergy.com and on the SEC’s website at
http://www.sec.gov.
All forward-looking statements are based on assumptions that PDC
or SRC believe to be reasonable but that may not prove to be
accurate. Any forward-looking statement speaks only as of the date
on which such statement is made, and PDC and SRC undertake no
obligation to correct or update any forward-looking statement,
whether as a result of new information, future events or otherwise,
except as required by applicable law. Readers are cautioned not to
place undue reliance on these forward-looking statements, which
speak only as of the date hereof.
PDC Contacts:
Michael EdwardsSenior Director Investor
Relations303-860-5820michael.edwards@pdce.com
Kyle SourkManager Investor
Relations303-318-6150kyle.sourk@pdce.com
SRC Contact: John RichardsonInvestor
Relations Manager720-616-4308jrichardson@srcenergy.com
Media Contact: Joele Frank, Wilkinson
Brimmer KatcherAndy Brimmer / Andrew Siegel212-355-4449
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