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Merger Mania Isn’t Over In America’s Shale Patch

Bonanza Creek Energy (BCEI.N) and Extraction Oil & Gas (EH4.MU) announced a merger this Monday, in an all-stock deal of $2.6 billion, forming one of Colorado's largest oil and gas drillers.

We’ve seen several mergers over the last year, many established as a means to weather the storm after a year of decreased demand and oil prices that sent several small firms spiralling into debt. 

Following the merger, Bonanza and Extraction shareholders will hold 50 percent each of the company, with the deal set to be finalised in Quarter 3 of 2021. 

Civitas Resources Inc., as the firm will be known, will be the biggest pureplay oil and gas company in the region. Operating across 425,000 net acres in the Denver-Julesburg Basin in Colorado, the company is set to produce around 117,000 bpd of oil equivalent.

Civitas is expected to increase Bonanza’s annual dividend by around 14 percent to $1.60 a share. The company could also generate as much as $25 million in annual savings. This is particularly hopeful for Extraction which came out of a chapter 11 bankruptcy at the beginning of the year, after filing during the lowest demand months of the pandemic last year. 

Eric Greager, Chief Executive of Bonanza Creek will become CEO of Civitas, and Ben Dell, Chairman of Extraction, will serve as chairman of the new firm. 

Extraction shareholders will get 1.1711 Bonanza Creek shares for every share of Extraction they own. Ahead of the merger, Extraction's stock increased 3 percent in premarket trading and Bonanza Creek's stock rose 1.7 percent, showing the optimism around the deal. 

The merger comes following a relatively successful first quarter for Bonanza following the difficulties of 2020, achieving 88 cents per share. Bonanza Creek shares have risen 75 percent since the beginning of the year, reaching $33.78 at the beginning of May. The company also announced average production levels of 20,900 bpd in the first part of 2021. 

CEO of Extraction, Tom Tyree stated of the merger, “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.”

Civitas is expected to adopt several sustainable energy products as part of its net-zero goals including an electric vehicle (EV) fleet and EV charging stations. 

The merger offers some optimism after a difficult year for oil in gas across the U.S., especially felt in Colorado. In April, media sources reported that Colorado oil and gas production had hit a record low in 2020, dropping by 13 percent compared to the previous year.  

Production, rigs and employment were all negatively affected by the decrease in demand for oil and gas last year. Producers announced the most dramatic four-month drop seen since 2001. In addition, employment in industry dropped by around 18 percent year-over-year in September last year. 

The enthusiasm around the merger reflects the general sentiment in the U.S. right now. As the vaccine roll-out has seen great success over the last few months and demand for oil and gas looks like it will continue to rise steadily throughout 2021, the merger comes at a time when Colorado is expected to ramp up its production once again. 

By Felicity Bradstock for Oilprice.com 

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