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PDC Energy set to swoop on SRC

THE US's PDC Energy is set to acquire rival SRC Energy in a $1.7 billion all-stock merger that will make the combined company the second-largest player in the state's prolific DJ basin, writes Caroline Evans.

Under the planned deal, Denver-based PDC will acquire SRC through an exchange of 0.158 of its shares for each of the latter’s shares, giving an implied value of $3.99 per share based on PDC’s closing price on 23 August.

The deal value includes SRC’s net debt of around $685 million, with the transaction due to close in the fourth quarter after being approved by the boards of both companies.

Shareholders praised the announcement, and PDC stock swung more than 17% higher to $29.65 in the hours after the deal was confirmed early this week.

Assuming $55 Nymex oil prices, PDC expects the combined company to generate about $800 million in free cash flow from the third quarter of 2019 through the end of 2021.

PDC will acquire SRC’s leasehold position of around 182,000 net acres in the core of the prolific Wattenberg field with production of nearly 200,000 barrels of oil equivalent per day.

The assets will "complement" PDC's holdings in the Delaware sub-basin of the Permian region of Texas and New Mexico, the company said.

The entirety of the combined company's DJ basin position will be located in Weld County, with about 80% of the gross acreage position in rural areas.

Developing in rural areas is important for Colorado producers, who may be subject to local rules regarding oil and gas activity.

The remaining 20% is located within Weld County local municipal boundaries, with about half in the town of Greeley.

PDC said it expects to realise about $40 million of administrative cost savings in 2020 with an incremental $10 million of synergies in 2021 on completion of the integration plan that will make it "a low-cost mid-cap producer".

Looking ahead, PDC expects to invest up to $1.4 billion next year to operate three Wattenberg and two Delaware rigs, with 2020 production expected to average between 200,000 to 220,000 barrels of oil equivalent per day.

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