Business Combinations and Asset Acquisitions
 9 Months Ended
Sep. 30, 2022
Business Combination and Asset Acquisition [Abstract]  
Business Combination
Note 2—Business Combination
Colgate Merger
On May 19, 2022, the Company entered into a Business Combination Agreement (the “Merger Agreement”) with CRP, Colgate, and Colgate Energy Partners III MidCo, LLC (the “Colgate Unitholder”). The Merger Agreement provided for the combination of CRP and Colgate in a merger of equals transaction, with CRP (which was renamed Permian Resources Operating, LLC or “OpCo” following the Merger) continuing as the surviving legal entity in the Merger and a subsidiary of the Company. Colgate was an independent oil and gas exploration and development company with properties located in the Delaware Basin. Colgate’s assets consisted of approximately 105,000 net leasehold acres and 25,000 net royalty acres located primarily in Reeves and Ward Counties in Texas and Eddy County in New Mexico. The Merger was completed to provide increases to our operational and financial scale, drive accretion across our key financial and operating metrics, and enhance the combined company’s shareholder returns.
On September 1, 2022, the Merger was completed, and all membership interests in CRP issued and outstanding immediately prior to the closing were converted into units of Permian Resources Operating, LLC (“Common Units”) equal to the number of shares of the Company’s Class A Common Stock that were outstanding immediately prior to the closing. All of the Colgate Unitholder’s membership interests in Colgate were exchanged for 269,300,000 shares of Class C Common Stock, 269,300,000 Common Units and $525 million in cash consideration. Following the closing of the Merger, the Colgate Unitholder distributed the merger consideration to its equity holders (the “Colgate Owners”), who collectively continue to own in the aggregate 100% of the outstanding shares of Class C Common Stock of the Company and approximately 48% of the outstanding Common Units in OpCo, which represent an approximate 48% noncontrolling interest in OpCo. This ownership of all the Company’s shares of Class C Common Stock by the Colgate Owners represents approximately 48% of the Company’s total outstanding shares of Class A Common Stock and Class C Common Stock taken together (the “Common Stock”). Refer to Note 9—Shareholders' Equity and Noncontrolling Interest for additional information on the equity structure of the Company following the Merger.
Purchase Price Allocation
The Merger has been accounted for as a business combination using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, with the Company being identified as the accounting acquirer. Under the acquisition method of accounting, the assets acquired and liabilities assumed are recorded at their respective fair values as of the Merger closing date, which requires judgment and certain assumptions to be made. Oil and natural gas properties were valued using an income based approach which incorporates a discounted cash flow method. The fair value of Colgate’s outstanding senior notes was based on unadjusted quoted prices for these same notes in an active market. The value of derivative instruments was based on Level 2 inputs similar to the Company's other commodity price derivatives. Refer to Note 8—Fair Value Measurements for additional information on fair value measurements.
As of the date of this filing, the merger consideration and purchase price allocation are preliminary. The fair value of merger consideration, assets acquired and liabilities assumed are not complete and adjustments may be made. The Company expects to complete the purchase price allocation during the 12-month period subsequent to the Merger closing date.
The following table represents the preliminary merger consideration and purchase price allocation of the identifiable assets acquired and the liabilities assumed based on their respective fair values as of the closing date of the Merger.
(in thousands, except share and per share data)Preliminary Merger Consideration
Share consideration
Shares of Class C Common Stock issued to Colgate Unitholder269,300,000 
Class C Common Stock per share fair value on September 1, 2022(1)
$8.08 
Fair value of noncontrolling interest that resulted from Class C Common Stock issuance$2,175,944 
Cash consideration$525,000 
Total Merger Consideration$2,700,944 
Fair value of assets acquired:Preliminary Purchase Price Allocation
Cash and cash equivalents$28,329 
Account receivable, net145,091 
Derivative instruments71,961 
Prepaid and other assets10,496 
Unproved oil and natural gas properties683,010 
Proved oil and natural gas properties3,421,303 
Other property and equipment, net4,175 
Operating lease right-of-use assets22,737 
Total assets acquired$4,387,102 
Fair value of liabilities assumed:
Accounts payable and accrued expenses$286,860 
Operating lease liabilities 27,076 
Derivative instruments322 
Long-term debt, net1,350,744 
Asset retirement obligations21,156 
Total liabilities assumed$1,686,158 
Net assets acquired$2,700,944 
(1)     The preliminary fair value ascribed to the Class C Common Stock issued in connection with the Merger was based upon the stock price of the Company’s Class A Common Stock as of the effective time of the Merger.
Post-Acquisition Operating Results
Since the September 1, 2022 closing date of the Merger, the results of operations for Colgate have been included in the Company’s consolidated financial statements. For each of the three and nine months ended September 30, 2022, approximately $125.0 million of operating revenues and $46.6 million of direct operating expenses attributable to Colgate’s business have been included in the consolidated statements of operations.
In connection with the Merger, the Company incurred certain merger-related integration and transaction costs that are expensed as incurred. During the three and nine months ended September 30, 2022, the Company recognized total transaction costs of $59.3 million and $65.0 million, respectively, which are included in Merger and integration expense on the consolidated statements of operations. These costs primarily relate to bankers’ advisory fees, legal, accounting and consultancy fees, as well as severance and related benefits associated with employees that were terminated in connection with the Merger.
Supplemental Unaudited Pro Forma Financial Information
The following supplemental unaudited pro forma financial information (“pro forma information”) for the three and nine months ended September 30, 2022 and 2021 has been prepared from the respective historical consolidated financial statements of the Company and Colgate and has been adjusted to reflect the Merger as if it had occurred on January 1, 2021. The pro forma information reflects transaction accounting adjustments that the Company believes are factually supportable and that are expected to have a continuing impact on the results of operations, with the exception of certain nonrecurring items incurred in connection with the Merger. The pro forma information does not include any cost savings or other synergies that may result from the Merger or any estimated costs that will be incurred by the Company to integrate the Colgate assets.
The pro forma information is not necessarily indicative of the results that might have occurred had the Merger occurred in the past and is not intended to be a projection of future results. Future results may vary significantly from the results reflected in the following pro forma information.
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Total Revenue $859,264 $485,760 $2,472,119 $1,298,182 
Net Income (loss)441,163 (21,417)653,452 (381,073)
Earnings (loss) per share:
Basic$0.63 $(0.03)$0.96 $(0.66)
Diluted0.57 (0.03)0.87 (0.66)