Good morning, and welcome to Centennial Resource Development and Colgate Energy Strategic Merger of Equals conference call. Today's call is being recorded. A replay of the call will be accessible until May 26, 2022 by dialing 855-859-2056 and entering the conference ID number 4495652, or by visiting Centennial's website at www.cdevinc.com. At this time, I will turn the call over to Hays Mabry, Centennial Senior Director of Investor Relations, for some opening remarks. Please go ahead.
Thank you, Livia, and thank you all for joining us on our conference call today to discuss the strategic merger of equals between Centennial and Colgate. With me on the call today are Sean Smith, CEO of Centennial, Will Hickey and James Walter, Co-CEOs of Colgate, George Glyphis, CFO of Centennial, and Matt Garrison, COO of Centennial. This morning, we posted a presentation that we will reference during today's call. You can find the presentation on Centennial's website homepage or under presentations at www.cdevinc.com. After the prepared remarks, we'll open it up for question and answer session. Finally, I would like to remind everyone that today's call includes forward-looking statements. Any forward-looking statements that are made on today's call are based on reasonable assumptions as of this date and time, and we undertake no obligation to update these statements as a result of new information or future events.
I would refer you to our SEC filings for a full review of those risks and our additional disclosures. With that, I will turn the call over to Sean Smith, Centennial's Chief Executive Officer.
Thank you, Hays. Good morning, and thank you everyone for joining us today. This is truly an exciting day for both Centennial and Colgate. I'm going to start off by providing a brief overview of the transaction and then turn the call over to Will Hickey and James Walter, who will provide more details on this highly compelling combination. Before we jump into the highlights of the merger, I'd like to take a step back and provide a little perspective on how we got here today. The Centennial and Colgate teams have known and respected each other for some time now. We are both focused on the same basin with a largely overlapping footprint, and our two companies share common cultures and values in respect to operational excellence, shareholder returns, ESG, and the communities where we work and live.
These are the primary reasons we are so confident the combination of these two great companies is the best path forward and will create more value together than either company could on a standalone basis. I also want to acknowledge this combination was made possible by our respective leadership teams and boards of directors who focus solely on what is best for our combined stakeholders and the go-forward prospects of the combined company. By combining in a merger of equals, we are bringing together two highly compatible and highly skilled organizations to attain greater operating efficiencies and to accelerate the return of capital to shareholders.
Starting on slide three, this merger of equals between Centennial and Colgate is a natural fit, creating a $7 billion Delaware Basin-focused E&P with a high-quality acreage position of approximately 180,000 net acres, an estimated current pro forma production of approximately 135,000 BOE per day. The combined company will have a high-margin, low-cost asset base with an extensive portfolio of high rate of return inventory. Importantly, this merger of equals is expected to be accretive to all relevant metrics, including cash flow and free cash flow per share and net asset value. On top of that, we expect the combined business to generate over $1 billion of free cash flow in 2023, assuming current strip prices.
Given our largely offset acreage positions, we firmly believe there is a significant amount of tangible operational and financial synergies to be realized, which include the more efficient development of the combined position, shared infrastructure, increased water recycling and longer lateral lengths, among other things. Furthermore, the combination accelerates both companies' shareholder return programs. Upon closing and assuming board approval, the company plans to initiate a quarterly fixed dividend, which will be complementary to Centennial's existing $350 million, two-year share repurchase program. Notably, the combined company shareholder return program will be resilient through commodity price cycles, all while maintaining a low leverage profile. As you can see, this merger checks every box, providing the combined company with significant size and scale, high-quality inventory, a strong balance sheet, accretive to free cash flow, and accelerated shareholder returns.
These are just a few of the reasons why we're so excited to be partnering with Colgate team going forward. Now let me go over the terms of the transaction, which can be found on slide 4. Today's transaction value of approximately $3.9 billion is comprised of 269.3 million shares of Centennial stock, $525 million of cash, and the assumption of Colgate's outstanding net debt at closing, which is approximately $1.4 billion currently. The combined company will retain a low leverage profile as we anticipate the pro forma company will have leverage of approximately 1x at closing and less than 1x by year-end 2022, assuming strip prices. Upon completion of the transaction, Centennial shareholders will own approximately 53%, and Colgate shareholders will own approximately 47% on a fully diluted basis.
The combined business will be headquartered in Midland while maintaining Centennial's Denver office for the foreseeable future. In terms of leadership, which is further detailed on slide 16, upon closing, I will have the privilege to serve as executive chair and look forward to working closely with Will and James, who will lead the company as co-chief executive officers. Both James and Will are accomplished leaders with a proven track record of value creation. Since founding Colgate in 2015, and under their leadership as co-CEOs, Colgate has grown through a combination of disciplined organic development and select strategic acquisitions while producing attractive returns for their shareholders. I am confident that Will and James are the right people to lead the combined company going forward and will drive additional value for our combined stakeholders.
Will and James will be joined by George Glyphis, Centennial's current Chief Financial Officer, and Matt Garrison, Centennial's current Chief Operating Officer. The remainder of the company's leadership team will include executives from both Centennial and Colgate, which will be determined at a later date. From a governance perspective, Will, James, and myself will serve on the board, along with Billy Quinn from Pearl and Robert Tichio from Riverstone, in addition to six independent directors to be appointed upon the closing of the transaction. Before I turn the call over to James, I'd like to reiterate how excited we are to announce today's transaction. Centennial and Colgate are excellent partners who each share a common vision for the pro forma company. This transaction will allow shareholders of both companies to benefit from the enhanced operating platform, strong balance sheet, and accelerated capital return program.
Finally, I'd like to thank all the employees for their hard work and dedication over the past few years. It is because of their talent and execution that have put us in this position to announce today's merger. With that, I'll turn the call over to James Walter.
Thanks, Sean. I'd like to start by saying that on behalf of the entire Colgate team, we echo everything that Sean has said about the mutual respect and history between our two companies. Our teams have been working collaboratively in the basin since 2016, comparing best operational practices, executing trades, and generally discussing win-win value creation opportunities. We've enjoyed building a strong relationship with the Centennial team in the office and in the field and are excited to take this next step of bringing our two businesses together. We are thrilled to announce the transaction between these two great companies and a combination that builds a Premier Permian Pure-Play . We'll talk through it in more detail as we go through these slides, but we believe this business is incredibly well-positioned to continue to deliver robust shareholder returns.
Given we are a private company, we thought it made sense to start with a little bit of background about our business, which you will find on slide 5. Colgate is a Midland, Texas-based oil and gas company and has been focused on the Delaware Basin since 2015. Over the past 7 years, our team has built a business that is currently producing approximately 70,000 BOE per day with over 100,000 net acres and approximately 25,000 net royalty acres in the core of the Delaware Basin. We've been actively running multiple rigs in the Delaware for the last 5 years, and our operations team has worked hard to build a successful track record of cost-focused execution. Our transaction team has consistently found ways to enhance our value creation trajectory through strategic acquisitions, divestitures, and trades.
As we have built this business, maintaining a fortress balance sheet has been core to our investment philosophy. We are laser-focused on ensuring that this business is always protected from potential down cycles, and we've kept leverage below 1.5x since we began our development program, with leverage below 1x the majority of the past five years. Since inception, Colgate's sole focus has been on maximizing returns to our investors through disciplined investment and a robust return of capital program. Our balance sheet strength during the COVID pandemic allowed us to initiate a cash dividend program in December 2020, and since then, we have been consistently returning capital to our investors through incremental dividends. We looked forward into the future, we spent a ton of time thinking through and evaluating what strategic path forward was best for Colgate and our investors.
Our starting point was that we have a great private business that could continue to support strong equity value creation on its own. As we got further into our dialogue with Sean and team, it was crystal clear that this combination had so many unique benefits that would allow both sides to create so much more value for our shareholders together than we could do alone. Slide 6 outlines a few of the reasons why we are so excited about the go-forward value creation potential. This combination brings together two high-performing teams with a track record of operational execution, strategic value creation, and outsized shareholder returns. Our shared vision is to build a differentiated upstream company that combines a scaled asset base and scaled cash flow profile with an incredibly capital-efficient and long-life inventory of drilling locations.
The wells that Colgate and Centennial are drilling today pay out an average of less than six months, and we have the inventory to sustain this level of capital efficiency for many years to come. We believe this platform maximizes the value creation trajectory for our investors while enhancing strategic optionality and resiliency in any market conditions. Our strong balance sheet and free cash flow profile position the pro forma business to have a leading return of capital program, which we will discuss in more detail on this call. The significant ownership stake held by our management team will ensure that all of our go-forward decision-making is aligned with the best interest of our shareholders. This alignment is further highlighted as you turn to slide seven.
It is our belief that the best way to ensure that a management team is aligned with shareholders is through common stock ownership, and our combined team will have amongst the largest management ownership structures in the public E&P space. Will, Sean, and I's combined ownership would make us the largest non-sponsor shareholder today. Alignment is not limited to the most senior members of management. All employees of Colgate and Centennial own an equity stake in the business, ensuring a culture of returns-focused ownership is present through all levels of our respective organizations. Our investors can be confident when we make decisions about the business, whether it's decisions around capital allocation and the day-to-day running of the business, enhanced shareholder returns programs, or long-term strategic visions, the only variable we're solving for is what is best for our investors.
Slide 8 is our attempt to show the historical return on equity since Will and I started Colgate in late 2015 and since Sean became CEO of Centennial in early 2020. As you can see from the graphs, an investment in Colgate or Centennial in either of those time periods would have significantly outperformed an investment in the E&P index or the broader stock market.
It is important to us that this business is set up to perform well when benchmarked against other E&Ps, but also to consistently compete for capital in a diversified equity portfolio. We're excited to build upon the remarkable returns track record that both Colgate and Centennial have delivered to date, and are confident the combined platform can continue that track record of outsized value creation. Turning to slide nine, our entire business plan is based upon the company continuing to have a strong balance sheet that provides financial, operational, and strategic flexibility. Our first priority as large shareholders is to ensure that this business is well-positioned to thrive in any commodity price environment. This is accomplished by a modest approach to leverage paired with a responsible hedging strategy. This approach also ensures the durability of our capital returns program.
As you can see in the graph at the bottom right, the combined business will have approximately $1.8 billion in bonds with no maturities until 2026. On the RBL side, we anticipate that we will upsize the existing Centennial credit facility at closing and expect that there will be less than $500 million drawn on that facility at close. We expect that our net debt to EBITDA will be roughly 1x at closing, and anticipate achieving our long-term target of less than 1x leverage by year-end at current strip pricing. With that, I will turn it over to Will, who's going to walk through our go-forward plan in more detail.
Thanks, James. From the beginning, we built Colgate with the core mission of delivering best-in-class well results while establishing ourselves as a low-cost operator in the Delaware Basin. One of the reasons I'm so excited about this combination is getting under the hood on some of the things that the Centennial team has done on the operations side. As you can see on Slide 10, their leading-edge drilling efficiencies are just one of the many potential best practices that we can roll out across the entire organization, and saving 6 days per well is meaningful dollars. Additionally, the lean nature of the Colgate organization, benefits of scaled operations, and continued focus on driving additional capital efficiencies will lower per-unit cost going forward. It's not just our business practices and operating philosophies that complement each other.
Our assets have significant overlap with approximately 40 miles of shared lease lines, which benefits things like water recycling operations, shared services, efficient field organizations, potential acreage trades, et cetera. Lastly, we expect the pro forma business to have an improved overall credit profile given the increase in scale and combined leverage profile. From an ESG perspective, which is detailed on Slide 11, I think you will see that both Colgate and Centennial are very aligned in continuing our previous successes with the pro forma business. On a standalone basis, both companies have made major improvements from 2020 to 2021 on greenhouse gas emissions intensity and reducing flaring to less than 1% in Q4 of 2021, something we are both very proud of. For the combined business, we are excited to adopt and expand Centennial's success in using recycled water across the pro forma company.
Now turning to Slide 12. Over the coming months, we're going to work through the details around specific guidance, but we wanted to give a general idea of both the business strategy and some high-level information about the plan. First, we are hyper-focused on delivering returns for our shareholders by maximizing free cash flow and returning it to our investors. To help frame what that looks like, we are expecting Q4 production of approximately 145,000 barrels of oil equivalent per day. Based on current activity levels, we are drilling about 140 wells per year, which results in approximately 10% production growth from Q4 of 2022 to Q4 of 2023. It's important to note that the 10% growth is only an output, not an input.
We are focused on near-term free cash flow, but in the current commodity price environment, with our inventory quality and cost structure, some amount of growth is accretive to our near-term free cash flow. Flipping to Slide 13, we've talked a lot about the benefits of this deal from an operational synergies and industrial logic perspective, but one of the main reasons that drove us to this deal was the ability of the combined company to both generate significant free cash flow and return it to shareholders. Both Centennial and Colgate have board-approved capital return programs today through Centennial's buyback program and Colgate's base dividend. As a combined company, we plan to review what the right plan is over the coming months, but both boards are aligned that return of capital is a significant part of the near-term business.
We think we can fill somewhat of a gap in the market as a high-quality, mid-cap Permian pure-play that has a meaningful return of capital program, and we are excited to step into that void. Turning to Slide 14, if you hear anything from me on this call, hear the excitement from both the Colgate side and the Centennial side around this transaction. Both respective teams saw an opportunity in front of us that we could capture if we put these businesses together, and we made it happen. Our combined company is simple. We are a Delaware Basin company focused on free cash flow and return of capital with a deep inventory of high return locations and a uniquely aligned management team. With that, I'll turn the call back over to Sean for any closing remarks.
Thank you, Will. I'd like to quickly wrap up. In summary, we believe this combination creates a premier independent E&P company with significant size and scale, underpinned by a dominant position in the premier oil basin in the United States. The pro forma company will have a disciplined and differentiated growth strategy, along with a management team with a proven track record of delivering top-tier operational results and significant ownership stake. Importantly, the combined company shareholder returns program are supported by its high quality and long-life inventory set, combined with a strong balance sheet. Given these attributes, we are confident the go-forward business has all the characteristics to thrive in today's market and drive additional value for our stakeholders. Thanks for listening, and now we'll go to Q&A.
Thank you. The question-and-answer session will be conducted electronically. If you would like to ask a question, please do so by pressing star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Now, first question coming from the line of Gabe Daoud with Cowen. Your line is open.
Thanks. Good morning, guys, and congrats on this transaction here. I understand we'll have to wait for specific guidance with the vehicles, but was curious if you could maybe give us a little more color on the equipment and CapEx required to execute the 140 wells a year. I guess it'd be the pro forma rig cadence and crew cadence, which I guess is 7 and 3. Could you just give us a little more color around that and specifically, I guess, a CapEx figure, and if you do anticipate dropping any equipment?
Yeah, I mean, I think just kind of combining the comments on some of the operational synergies. Sorry, this is Will Hickey, by the way. Combining some of the operational synergies work with the 140 wells per year, I think it's safe to assume the goal would be to execute on that plan with less rigs than we are running today. As far as specific kind of comments around CapEx, I think that's what the teams are gonna be working through together between now and closing, and we will come out with a very specific guidance as to what 2023 looks like kind of over the coming months.
Okay. Thanks. Thanks, Will. That makes sense. Then, just a quick follow-up. Is there a production split on Colgate, just what those figures are? Is it pretty similar to CDEV legacy?
Yeah. I think we're about 50% oil today, plus or minus, so very close to where CDEV is.
Got it. Okay. Maybe just on return to capital, I understand that there's maybe additional returns here, pro forma, but could you reframe a bit expectations here and if it's fair to assume that the $350 million buyback could be upsized? Also just timing around executing that buyback, just given where leverage metrics are.
Yeah. I mean, I think Sean said it well, but where we stand today is we have two businesses coming together, and I'd say we each bring our own kind of differentiated return of capital program to the dance. Centennial with their $350 million authorized buyback program, and Colgate with our $25 million quarterly dividend. I'd say our plan is to review the various strategies for incremental returns and to have a more detailed enhanced return program approved by our board and ready to discuss by the time we close this deal. I'd say we'll be working through exactly what that looks like. You know, I think there's a lot of different flavors of enhanced returns, and I'd say we're certainly focused and excited about increasing the returns program.
I think exactly what it looks like is, again, like Will said, gonna require us to sit down with our various teams and our boards kind of over the coming months.
Got it. Thanks, guys. One last one for me, and then I'll hop back in. Just on, could you maybe just talk about Colgate's gas takeaway, maybe just processing of position, maybe who the midstream counterparties are? Just, you know, I think there's certainly a worry that gas could be quite tight in the Permian the second half of this year into next year. Just curious if there's any color you could provide on that. Thanks again.
Yes. I mean, I'd say the two largest gas processors and kind of ultimate takeaway for us is gonna be Kinetik, formerly EagleClaw, and then Enterprise. We feel really, really good about those two parties. I think Kinetik's in a really good position after the merger or the continuing merger with the Apache or legacy Apache gas processing system, but they've got a lot of capacity there. Enterprise is obviously one of the largest gas processors in the basin. I'd say we feel really good about where we stand today and don't foresee any issues going forward.
Awesome. Thanks a lot, guys.
Thanks, Gabe.
Now, next question coming from the line of Leo Mariani with KeyBank. Your line is open.
Hey, guys. I was hoping maybe you could elaborate a little bit more on the synergies here. You obviously described some operational synergies. I imagine there could be some G&A as well. Would y'all be able to quantify roughly what kind of the financial synergy piece could be here on an annual basis as well as maybe the operational piece?
Yeah. I mean, I think just generally speaking, the majority of the kind of quantified synergies are gonna come from the operations side. Just that. You can move a lot bigger dollars relative to CapEx budgets, and I think we've just in the few days of kind of working through what this pro forma organization looks like between both teams, we've seen a lot of those. Just, you know, quick examples being Centennial's kind of slim hole drilling design as adopted in the pro forma company saves, you know, call it five or six days, which at a drilling spread rate of, you know, call it $80,000 a day can add up to real dollars across the program.
Then Colgate's done some very unique things on the facilities side and just kind of overall cost structure side that which shows up in our current margins that I think will be beneficial. Then obviously, there's the benefits of, you know, lateral length extensions, et cetera. You can see on the map, I mean, there is crazy overlap of these two assets. As for people, I'd say that's kind of on the to-do list between now and closing. I think it's extremely important that we keep, you know, key personnel from both organizations. As it says in the press release, we are planning to keep the Denver office open for the foreseeable future.
There's a lot of extremely key people from both organizations that we need to make sure are a big part of the go-forward story. I think in time you'll see that, you know, hopefully there are also synergies on that side. It's just hard to put a number to it until we actually stack up the org charts and work through it person by person.
Yeah. I'd say kind of specifically, I mean, Colgate, you can see it on slide 10, like our cash G&A per BOE is really low. I think kind of a natural kind of at closing, you'll see the kind of combination of these two businesses reducing per unit costs from where Centennial is day one. As Will said, you know, I think across the cost structure, I think we're gonna be hyper-focused on being an industry leader from drilling and completions to G&A per BOE to LOE, and kinda continue to focus on, you know, on being a leader in that regard.
Okay. You know, Colgate has certainly not shied away from continuing to kind of consolidate parts of the Permian Basin in the last handful of years, and clearly has grown that in that fashion. Just from a strategic perspective, could you give us just some color around you know, whether or not you still think the kinda combined entity will still you know, be acquisitive and try to continue to grow the position in the Delaware over time?
Yeah, sure. No, it's a great question. I mean, I'd say the really simple answer here is we've got a great business today, so we don't need to do anything. You know, I think we are extremely happy with the status quo and what the combined business looks like on a go-forward basis. You know, I'd say we do believe that there potentially could be consolidation opportunities going forward. You know, I'd say we've been opportunistic historically. We've never had a mantra to grow for growth's sake. But I'd say if we can find transactions that improve the equity value creation story we have today, you know, we'll definitely do the work and evaluate them. You know, I'd say, as you mentioned, I think we have been really effective buyers and also sellers of assets over time.
You know, we believe establishing a business with strategic relevance like we've done here, that we can leverage the team to grow the business accretively is one of the things we're excited about this. I'd say we don't have to do anything, and given the asset base that we have today, you know, the bar for any acquisitions is incredibly high.
Okay. Thanks, guys.
Thanks.
Thanks, Leo.
Our next question coming from the line of Neal Dingmann with Truist Securities. Your line is open.
Good morning, guys. Congrats on the deal. My first one, just maybe George, for you, just on hedging. Could you talk about, you know, I guess, the assumption of Colgate's hedges and maybe how you guys are thinking about a pro forma? What, not only where the hedge position will be, but how both teams are sort of thinking about hedging going forward.
Yeah. Good morning, Neal. Thanks for the question. I think if you look at page 17 and 18, you can see the outline of the two hedge books. I think we've been very aligned in terms of our combined philosophy around hedging. We're very focused on making sure that we are, you know, creating a balance sheet that's very strong, and hedging is a key part of that, particularly in 2022. You can see that there's fairly significant volumes hedged for the balance of this year, as well as into 2023 and a bit in 2024. I think we're aligned on hedging philosophy.
I don't think we have any specific hedge targets that we're prepared to talk about on the call today, but it's a very similar philosophy about protecting cash flow, protecting the balance sheet, making sure that we've got a steady operational plan that we can execute, and we're protecting rig activity and so forth. You know, as we de-lever over time, I think there's a little bit more flexibility over time to maybe not have quite as many hedges as we have today as the balance sheet improves and leverage improves. Hedging will always be part of the company as we protect the shareholder return program and really drive value.
Well said. Then, James, this is one for you or Will. How do you think you touched a little bit on the shareholder return, but I'm just thinking of really my simple question is, how do y'all think about payout? I mean, there's a lot of companies, you know, now your size or larger that are paying out upwards to, I don't know, you know, call it 60%, 70%, 80% of the free cash flow. Do y'all just sort of in your mind, how you think about it from sort of strategic, is it, you know, you're still more about growth, you're still about payout? You know, how do y'all sort of view it in sort of broad strokes?
Yeah. I, you know, I think just to reemphasize it, I'd say I hope what you guys are hearing from us is that this is a management team that's dedicated to having a leading capital return strategy that we expect to ultimately compete with what the large caps are doing today. You know, I'd say I think slide 13 does a pretty good job of highlighting where we ultimately want to be on the left-hand side of that page. You know, I think, you know, more details to come. We're not gonna give a specific payout ratio on the call today. But like I said, our plan is kinda continue to review this and expect to continue to enhance this program in the near term. And, you know, I'd say it's something just philosophically, this is incredibly important to Will and I.
I'd say it's something we've been doing for several years now on the private side and excited to continue to expand on the public side. You know, I'd say we built this business with the sole purpose of, you know, returning capital to shareholders and driving equity returns. This kind of return of capital mindset is really in our DNA.
You know, it's great to hear. Lastly, just on insider management ownership, it's great to see the significant stake. You know, is that sort of the continued plan going forward, just the management will continue to have skin, you know, significant, what I call significant skin in the game, especially versus some of your other Permian peers?
Absolutely. I mean, I think we, Will and I and our entire team and the Centennial team really believe in the go-forward value creation of this business. I mean, I think there's not a better place as we see it, to be putting dollars today than into this combined company. You know, I'd say I think that's something that we and all of our shareholders on our side are committed to for the long term and excited about this really more than anything we could be excited about outside of the kind of combination.
No, great to hear. Thank you, guys. Congrats to you.
Thanks, Neal.
Our next question coming from the line of Scott Hanold with RBC Capital Markets. Your line is open.
Hey, thanks all. A couple questions. Number one, it looks like, you know, Colgate's production, you know, ramped up a bit from where it was in the first quarter, you know, I think around 60 a day to 70 a day. Can you just give a little bit of color on that? And what do you see as the corporate decline rate now then on a pro forma basis, and what type of sort of like maintenance break-even point you all have?
Cool. I'll take it just a quick shot at the corporate decline rate. This is Will. I'd say generally speaking, the Colgate decline rate is shallower than you may think, just given the growth of the company, primarily driven by a lot of our growth to the 70,000 barrels a day today was via acquisitions. A lot of those acquisitions came from a you know, low decline, kind of more tenured production base. I think our growth from Q1 to today. I think we're gonna be right around 62,000 barrels a day in Q1. That's just kind of the ebbs and flows of large scale pad development. You'll see that we are drilling extremely robust wells from a well results perspective.
That's the kind of growth that our business and really this pro forma business can generate from just a select subset of wells. From a decline rate perspective, I think, you know, Centennial is kind of in the, if I was to pick round numbers, mid-thirties, and we were in the kind of, call it right around 40. I think given the kind of plan, obviously, we're working through this in real time, but given the kind of plus or minus, call it 10% growth over the kind of 12 months post-closing, you'd expect that decline rate to be about kind of hanging there right in that range. Hopefully that's helpful.
Yeah, just to clarify, I'm sorry. The move from where you were in 1Q to like, where you were in May, was that new wells being added, or was that acquisitions that occurred from first quarter to May?
I'd say both. It's probably the majority of it's gonna come from just, yeah, the ongoing drilling program organically. We did a kind of a large trade with a company that added some more low decline barrels, so kind of a mix of both.
Okay, understood. From, I guess, the corporate structure going forward, I mean, you know, two CEOs moving forward and, you know, effectively two offices, like what is the long-term plan there? I mean, you know, obviously having two CEOs in a public, you know, entity is not, I guess, necessarily the norm and, you know, can be, you know, argued whether or not it's efficient and, you know, the best mechanism going forward. Give us a little bit of color on, you know, why two CEOs and does it make sense to kind of like, think about streamlining that a bit?
You know, I'd say Will and I have been acting as co-CEOs for seven years now, and it's worked incredibly well. I'd say the short answer to that is that we think having two CEOs has allowed us to build a better business than we could have with just one. You know, in short, it allows us to kind of allocate some decision-making and responsibility with Will typically taking the lead on operational execution and development, with me taking the lead on more transactional, financial-related items. It's been awesome. It's really helpful to have a peer and equal kind of co-CEO to bounce ideas with and collaborate and kind of make hard decisions together. I'd say we view the co-CEO as a big part of our success and don't expect any changes to that going forward.
Look, I'm also excited. I think it's gonna be awesome to have Sean as the executive chairman role to help us lead the business. We've run a company, you know, a scaled company together for the last seven years, but we've never run a public company. I think having Sean here to help us navigate some of the nuances that come with that and help as we kind of get up to speed there is something we're really excited about.
Yeah. As to the office question, look, I think we're working through all this real time. The key thing I think you should hear on this call is it's extremely important that we have key players from both the Centennial and Colgate teams as part of this new company. We both got here because of the teams we have, and it's extremely important that we keep both of those teams motivated and excited to be part of this new company. You know, in due time, we will figure out what makes sense from the office perspective. I think we're planning on having a real presence in Denver and keeping their office intact for the foreseeable future is gonna be part of that plan.
Okay. You had mentioned, I guess, at the get-go that you obviously all knew each other, you know, you know, for quite some time. Did this transaction come together relatively quickly, recently? The reason I ask that question is, you know, I think obviously, you know, through the Q&A, you know, there were questions on, you know, like what's the go forward plan, give us more specifics and, you know, the shareholder return. It seems like it's, you know, still yet to be determined. I think it's gonna be important for investors to kind of get a better handle on, you know, what that looks like. Why not a little bit more detail and color already put together on that go-forward plan? Or did this deal come together relatively recently?
Yeah, I'll take a shot at that, Scott. Appreciate the question. I'd say that we have definitely had business interactions for many years now, and Will and James have collaborated with us on various things. We're obviously neighbors when it comes to our leasehold positions, and so it just makes sense to have a business relationship from an operational point of view, if not from a collaboration point of view on various things. I think the relationship has definitely grown over the years and it's been a joy, I think, to watch their growth alongside of ours. I would say they're very similar both size and scale and in nature and also in neighborhood. It's been a pleasure to work next to these two.
I would say on a go-forward basis, you know, releasing detail on a major transformational event like this is something that we don't wanna do, you know, kind of half-baked. We wanna make sure that we take our time to really thoroughly understand what the pro forma combination can look like, all the efficiencies, all the synergies, before we make some very clear.
Prescriptive guidance towards shareholder return programs and such. We also have to reconstitute the board, and so that also has an influence on what the pro forma company will eventually look like. We try to give some very near-term goals and events around what it's gonna look like for the balance of this year, but the new board will eventually have to approve capital programs, shareholder returns and whatnot. There has to be a little bit of unfortunate ambiguity there as we pull that together.
I think you'll see from the proxy and just kind of how this deal came together that we really kind of once we said, "Cool, this is happening, hit go," this came together. This was very quickly done. We have not had months and months knowing this deal was coming together to come up with the plan. This made sense in a unique window, and we hit go and did it very quickly.
Okay. I appreciate the color. Thank y'all.
Thanks, Scott.
Our next question coming from the line of Derrick with Stifel. Your line is open.
Good morning, all, and congrats on your merger.
Thanks, Derrick.
While clearly still early in the integration process, could you perhaps speak to where you see the biggest differences in operational and development practices between the two companies?
Sure. I'll take that. I'd say biggest difference, generally speaking, the two companies have very similar philosophies. Just from a overall, you know, well spacing, focus on costs, you know, make sure every, you know, hyper-focused on kind of look-back analysis and returns-focused development. I think we are very aligned. I do think that kind of I hit on some of them, but just both Colgate had a presence in Midland for a long time. We're headquartered in Midland, and I think we have probably found our differentiation from the market in negotiating favorable contracts, whether that's on the, you know, service side, midstream side, et cetera. So think of it as kind of our dollar per unit is typically on the top, better end of market.
I think Centennial, if we stacked it up and contrasted it, has made their kind of bread on reducing the number of units used. They have done an unbelievable job over the last two years in shaving days on the drilling side, shaving days on the frack side. I mean, they're drilling 50 wells a year with two rigs, which is remarkable. I just to kind of put those two together is a really unique combination, right? We can make a goal to both leverage our side of lowering dollar per unit and their side of less units, and together, I think you'll see some really special things come.
That's great color. As my follow-up, could you perhaps speak to the potential accretion from debt refinancing you'd expect given your pro forma scale?
Yeah. Scott, it's George. I think in terms of the financial synergies or excuse me, Derrick. In terms of the financial synergies, that's something we're looking at closely. I think James had walked us through the maturity profile, which frankly gives us a ton of flexibility on that point. We both have accessed the bond market over the years and have very attractive coupons on our existing securities. It's something that we will over time address and be opportunistic about. I think in the near term, you know, markets are fairly turbulent right now, and we're pretty happy that we do have relatively attractive coupon debt on the balance sheet with a good maturity profile.
I do expect the overall company will have a lower cost of capital going forward just given the size and scale of the business and the credit attributes. We view this transaction as a credit accretive deal. We will fully avail ourselves of the financial synergies over time.
Thanks for your time, and again, congrats to you guys on the deal.
Thank you, Derrick.
Our next question coming from the line of Doug Leggate with Bank of America. Your line is open.
Good morning, guys, and congrats on the transaction.
Thanks, Greg.
Just on the, you've talked about this less than 1x leverage target and for 2023 and beyond. Given the size of your company and just what's taking place in this environment and higher prices, how do you think about normalized commodities for that leverage target? What are you really targeting there?
Yeah, you know, I think we put out the less than one times target. I'd say, you know, I think the way we think about it, I'd say leverage is a helpful and easy metric to kinda talk to, but I'd say what we're doing on our side is a detailed scenario analysis behind the scenes to make sure that our business is safe in pretty much any commodity price environment. You know, I think we wanna have a balance sheet that you can risk, you know, not just down to more normalized price environments or mid-cycle, but really, really tough environments like what we saw in 2020.
You know, I'd say our business, you know, take what was extreme outlier of a COVID pandemic, like, our business performed remarkably well kinda during that time period. We kept leverage below 1 times. Ultimately, I'd say that kind of balance sheet strength and flexibility positioned us to do, you know, a lot of the things that we've done, and then ultimately this deal right here. I think we will continue to focus on ensuring that our business is protected in really any downside scenario and kinda what that looks like you said, is gonna be dictated by the kinda commodity price environment, our hedge book, et cetera. That we can ensure you that we're 100% focused on ensuring that our downside is protected and your downside is protected in almost any price environment.
Great. Just two more questions for you. The first one being, you mentioned you're gonna have about $500 million on the revolver when the transaction closes. Are you comfortable running with that much debt on the revolver? Is it your plan to maybe pay down more or potentially term it out one day? Just a second question. I don't think there's a change of control here in any of the bonds, when I just looked through some of the indentures. Just wanted to confirm that was your read.
Yeah, I think first on the revolver outstandings of less than $500 million at closing, which we, you know, again, anticipate closing it in the second half of the year. There's gonna be a lot of free cash flow generation between now and then. You know, it's Centennial standalone, if you look at our 331 statements and our Q1 call, you know, it was a pretty great place to be to have cash on the books and nothing drawn on our credit facility. We expect post-closing that $500 million, less than $500 million of outstandings could potentially be repaid very quickly given the combined free cash flow potential of the company.
You know, obviously we've talked a little bit about a future shareholder return program that will also be addressed over time. Doug Leggate, I think the short answer is we will continue to repay those outstandings and put the balance sheet in a really good place.
Just the second part of that question, I think there's no change of control on the bonds, indenture.
Yes. That is our current read as well. We think this is a credit-enhancing transaction and the change of control would not trigger.
Great. Thanks again for the time, guys.
Thanks, Doug.
Ladies and gentlemen, if you'd like to ask a question, please press star one. Our next question coming from the line of Doug Leggate with Bank of America. Your line is open.
Good morning, and thank you for taking our questions.
Our first question is on inventory just for Colgate itself. I mean, you have your position in the Northern Del and your Southern Del. Just how does that sort of inventory break out between the two areas? If, you know, the deal itself, the transaction talks about the ability for longer lateral lengths. What is the average lateral length for Colgate in the Northern Del and the Southern Del when you look at inventory approximately?
Perfect. This is Will speaking. I'd say Colgate, we kind of view our inventory, it's pretty close to 50/50 between Northern Delaware and Southern Delaware. I think we. You know, our Southern Delaware is unique in that we have, you know, if you go look at it, some of the kind of most remaining large fairways left in the Southern Delaware, which has really accreted just kind of the overall inventory profile of our Southern Delaware. Then obviously the Northern Delaware being as prolific as it is, it's a good about 50/50 split. From a lateral length perspective, Colgate's in the kind of 8,000-9,000 foot lateral length on average.
I think New Mexico or the Northern Delaware is gonna be kind of in the low eights, and the Texas is gonna be in the kinda mid to high eights. The majority of our development is two-mile laterals, which as it stands today we view as the optimal length. That that's kinda why go to the to the accretion of combined lateral lengths is there are quite a few units where we have overlap where this does extend laterals. If you think about just kind of on a standalone basis, Colgate was a high percentage two-mile lateral company and so was Centennial. We're in a really good spot of having a long runway of two-mile locations in both the Northern and Southern Delaware going forward.
Our second question is, it was touched on a little bit earlier, was sort of on maintenance CapEx with Colgate. Now granted, that was not necessarily the strategy at, on the standalone basis. You know, if you had to sort of hazard a guess with like a dollar range, what would be Colgate's maintenance CapEx going forward? That's maybe not the strategy, but if you were going to hold production flat, what would be maintenance CapEx for Colgate standalone?
I think just kind of details around maintenance CapEx, et cetera, give us a few months to work through this new plan and come out with guidance, and we will make sure to fill you guys in on what it looks like from a maintenance CapEx growth rate, et cetera. We're gonna hold off on trying to guide too close to that for now.
Yeah, maybe just to follow up to that, Will. I think that there's some real opportunity that Will touched on earlier about operational synergies and things like that. The maintenance CapEx going forward is gonna look different because I think there's some real opportunity to drive efficiencies between companies. We're gonna push off that question until we have a better understanding of where we really think we can drive cost down.
All right. Appreciate it. Thank you.
Thank you, John.
I'm not showing any further questions. At this time, I would now like to turn the call back over to Mr. Sean Smith for any closing remarks.
Thank you. As you've heard, there's a tremendous amount of excitement from the management teams around this truly transformational combination. We look forward to integrating these two very successful companies to drive additional value for all of our stakeholders, and I think we've shown why. With that, I think we'll just thank you for your time this morning and appreciate having follow-up conversations with many of you. We will end the call with that. Thank you very much for your time.
Ladies and gentlemen, that ends our conference call today. Thank you for your participation. You may now disconnect.