(Bloomberg) -- Centennial Resource Development Inc., a shale oil producer in the Permian Basin, agreed to acquire private equity-backed rival Colgate Energy in a cash-and-stock deal valued at about $2.5 billion.

The deal creates “the largest pure-play E&P company” in the Delaware Basin, which forms part of the Permian, Sean Smith, chief executive officer of Centennial, said in a statement Thursday. 

The Permian Basin of West Texas and New Mexico -- the largest and most productive US oilfield -- has long been a focus of consolidation because it’s immensely lucrative and fairly fragmented. Growing concerns about dwindling inventory of top-tier well sites is expected to drive more mergers and acquisitions in the prolific shale patch. 

Colgate, which started in 2015 with backing from Pearl Energy Investments and Natural Gas Partners, has been one of the most active private drillers in the basin, operating on roughly 105,000 net acres. It grew aggressively last year with its purchase of assets from Occidental Petroleum Corp. and Luxe Energy LLC. 

Colgate was preparing to go public, but began considering a sale after receiving takeover interest, Bloomberg previously reported. 

The combined company, operating under a new name and stock ticker symbol to be announced later, will be headquartered in Midland, Texas, and have an office in Denver. Smith will serve as executive chairman of the board, while Colgate’s co-CEOs Will Hickey and James Walter will lead the company as co-CEOs and serve on the company’s expanded 11-member board.

The deal is expected to close in the second half of the year. Shares of Centennial were up about 1% in early trading. 

(Updates with company background and leadership in fifth through seventh paragraphs.)

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