Bonanza Creek Energy and Extraction Oil and Gas have announced today their intention to merge. The two Colorado-based drilling companies will create a third entity called Civitas Resources, valued at approximately $2.6 billion. Ownership of the new company will be split evenly between Bonanza and Extraction shareholders.
The all-stock deal carries no premium for either party. The rationale of the deal appears to be purely operational; leadership for Bonanza and Extraction have said they expect the combined entity to save approximately $25 million annually in expenses and capital expenditures. Extraction chairman Ben Dell will transfer to become the chairman of the Civitas, while Bonanza CEO Eric Greager will become the new company’s CEO.
As a result of the capital savings created by the merger, Bonanza expects to be able to increase annual dividend payouts to $1.60 per share, up about 14% from before the merger. Extraction shareholders have never received a dividend, but will from their stake in the new company.