Corporate M&A

Bonanza Creek Energy and Extraction Oil & Gas Combine in Merger of Equals

By Isha Makkar
May 10, 2021
3 minutes read
Shaking Hands

NYSE-listed Bonanza Creek Energy Inc. and NASDAQ-listed Extraction Oil & Gas Inc. have entered into an agreement to combine in an all-stock merger of equals worth approximately US$2.6 billion on an enterprise value basis. The combined entity will operate as Civitas Resources Inc., with a focus on operations in the DJ basin in Colorado and an operating base of approximately 425,000 net acres.

Under the terms of the deal, Extraction shareholders will receive 1.1711 Bonanza Creek shares for each share of Extraction common stock owned. Based on the exchange ratio and the companies’ closing share prices on May 7, 2021 (the last trading day prior to the transaction announcement), the total combined market capitalisation (equity value) amounts to approximately US$2.3 billion. Based on Bonanza Creek’s reported negative net debt of approximately US$38.7 million (as of March 31st, 2021), plus Extraction’s reported net debt of US$354.6 million (as of December 31st, 2020), amounting to a total combined net debt of approximately US$315.9 million, the implied transaction value is approximately US$2.6 billion.

The transaction will be implemented through Raptor Eagle Merger Sub Inc., a wholly-owned subsidiary of Bonanza Creek, merging with and into Extraction, and Extraction emerging as the surviving corporation and a wholly-owned subsidiary of Bonanza Creek. Upon completion, shareholders of Bonanza Creek and Extraction will each own approximately 50% of Civitas Resources, both on a fully diluted basis.

Civitas Resources will be headquartered in Denver, with approximately 425,000 net acres of DJ basin assets across Weld, Laramie, Kimball, Larimer, Boulder, Broomfield, Denver, Arapahoe, Adams, and Elbert counties in Colorado. The net proved (1P) reserves of the merged company stand at approximately 315 million barrels of oil equivalent (MMboe), with an estimated average daily production of approximately 117 million barrels of oil equivalent per day (Mboe/d) during April 2021.

“We believe the combination of Bonanza Creek and Extraction will create one of the most durable, profitable, and progressive producers in the DJ Basin, with premium assets at the front end of the cost curve. Collectively, we will create significant value for all stakeholders as we will become Colorado’s first net-zero oil and gas producer through the continuing reduction in operational emissions coupled with a multi-year investment in certified emissions offsets,” commented Tom Tyree, Extraction’s CEO.

Based in Denver, Extraction Oil & Gas is engaged in the acquisition, development, and production of crude oil, natural gas, and NGL reserves in the Rocky Mountain region of the United States, with primary operations in the Greater Wattenberg Field in the DJ basin in Colorado, targeting the Niobrara and Codell formations. Extraction Oil & Gas currently holds ~140,000 net acres in the Core DJ basin, with a total of 1,322 gross producing wells, and ~96,700 net acres in other Rockies areas outside of the Core DJ Basin.

Bonanza Creek Energy is engaged in the acquisition, exploration, development, and production of oil and liquids-rich natural gas in the Rocky Mountain region of the United States, with a primary focus on the Niobrara and Codell formations in Weld county, Colorado.

The transaction has been unanimously recommended by the board of directors of both companies. Funds managed by Kimmeridge Energy Management Company LLC currently own approximately 38% of the outstanding shares of Extraction, and have entered into a support agreement to vote in favor of the transaction.

JP Morgan Securities is acting as financial advisor to Bonanza Creek, and Petrie Partners Securities is acting as financial advisor to Extraction.

The transaction is subject to customary closing conditions, including approvals by Bonanza Creek and Extraction shareholders, and is expected to close by Q3-2021.

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