Permian Merger Mania Spreads to the Bakken
by Andreas Exarheas
click here to read the original article at Rigzone.com
*this article was not written by Roseland Oil & Gas
Merger mania gripping the Permian Basin has spread to the Bakken in North Dakota with Chord Energy buying Enerplus for almost $4 billion – using closing share prices as of the day of the deal and including Enerplus debt.
That’s what Andrew Dittmar, the Senior Vice President of Enverus Intelligence Research (EIR), said in a statement sent to Rigzone, adding that the deal is “part of a wave of corporate mergers across oil and gas as management teams have bought into a mantra of bigger is better and investors appear to mostly agree with recent deals by Cheseapeake, Diamondback, and now Chord leading share price gains”.
The deal will shift Chord into the large-cap peer group, Dittmar noted in the statement.
“However, scale by itself won’t add investor value without concurrent benefits from access to more high-quality drilling locations and lowering costs by capturing synergies,” he added.
“The acquisition of Enerplus hits these goals for Chord. Enerplus has about six years of the high-quality drilling inventory investors prioritize, or locations that are economic at a $50 per barrel oil price or less, compared to Chord at about four years,” he continued.
“That doesn’t seem like a big difference, but anything companies can do to extend this metric has been well received by investors. Both companies have more than a decade of inventory looking at drilling locations economic at $60 per barrel or less, which investors are not currently focusing on but should add value as the best drilling locations are depleted and activity shifts to higher cost areas,” he went on to state.
Investors have also favored in-basin consolidation among companies to generate more synergies from operations beyond the typical administrative savings associated with corporate M&A, Dittmar said in the statement.
“In this deal, Chord says it will generate $150 million in annual synergies once operations are fully integrated including $110 million in savings from reduced well drilling costs and lower lease operating expenses,” Dittmar noted.
“Other well-received deals including Chesapeake merging with Southwestern and Diamondback’s acquisition of Endeavor also included substantial in-basin synergies,” he added.
Corporate consolidation among public companies has also likely been favored in recent deals because it presents a more attractive value proposition than where deals with private sellers are pricing, according to Dittmar.
“Given the relative discount E&P equities are trading at, buyers can offer a modest premium of 10-15 percent, where most deals have priced, including the Enerplus acquisition, and gain the assets cheaper than buying a private company,” he said in the statement.
“Both Enerplus and Callon, which recently agreed to an acquisition by APA, were acquired for near the value of their existing production without the buyer having to pay the $1 million or more per location seen in many private deals for comparable quality inventory,” he added.
While Chord will be a dominate operator in the Williston with around 15 percent of gross operated production, the Williston Basin still contains substantial acquisition opportunities relative to the more consolidated basins like the DJ and, increasingly, the Permian, Dittmar said in the statement.
“EnCap-backed Grayson Mill Energy is reported to be exploring a sales process this year and non-core assets could be placed on the market by 2023’s large buyers like ExxonMobil,” he added.
“With this deal preserving balance sheet strength, Chord is poised to be a further consolidator in the basin although it may wish to conclude this deal before folding in another major asset,” he continued.
In a joint statement posted last week, Chord Energy Corporation and Enerplus Corporation announced that they had entered into a definitive arrangement agreement “under which Chord will combine with Enerplus in an approximately $11 billion stock and cash transaction”.
“The combined company will have a premier Williston Basin position with deep, low-cost inventory, approximately 1.3 million net acres, combined 4Q23 production of 287,000 barrels of oil equivalent per day, and enhanced free cash flow generation to return capital to shareholders,” the companies said in the statement.
Under the terms of the transaction, each common share of Enerplus will be exchanged for 0.10125 shares of Chord common stock and $1.84 per share in cash, representing 90 percent stock and 10 percent cash consideration, the companies noted in the statement.
Upon completion of the transaction, Chord shareholders will own approximately 67 percent of the combined company and Enerplus shareholders will own approximately 33 percent on a fully diluted basis, according to the statement, which highlighted that the combined company’s enterprise value of approximately $11 billion is inclusive of Enerplus’ net debt, based on the transaction exchange ratio, and the closing share prices for Chord and Enerplus as of February 20, 2024.
“This combination further strengthens our Williston Basin position and represents a compelling opportunity for both companies’ shareholders,” Danny Brown, Chord Energy’s President and Chief Executive Officer, said in the joint statement.
“Enerplus’ Williston Basin position brings high-quality inventory, and we are excited to leverage best practices from both companies to create a stronger, more efficient entity. The combined company is expected to benefit from improving returns, capital efficiency, low-cost inventory, and a peer-leading balance sheet, all of which support sustainable free cash flow generation and meaningful shareholder returns,” he added.
“This is also a great opportunity for the employees and stakeholders of both Chord and Enerplus, as we believe the combined company will continue to benefit the communities in which we operate in North Dakota and Montana, including the Fort Berthold Reservation. We look forward to working closely with Enerplus to ensure that the full potential of this combination is realized for the benefit of all of our stakeholders,” he continued.
Ian Dundas, Enerplus’ President and Chief Executive Officer, said in the statement, “this transaction brings together Chord’s and Enerplus’ premier asset bases, operational abilities, and technical acumen to create a combined company positioned to drive further success, deliver competitive returns and peer-leading shareholder distributions”.
“Joining forces with Chord will provide Enerplus shareholders with immediate value for their investment and the opportunity to participate in the future upside potential from ownership in the stronger, larger company with enhanced shareholder returns,” he added.
“I want to thank our employees for their dedication and hard work over the years that has allowed us to build such a great organization and reach this exciting milestone,” he continued.
The combination has been unanimously approved by the boards of directors of both companies, the statement revealed, adding that it is expected to close by mid-year 2024.
by Andreas Exarheas
click here to read the original article at Rigzone.com
*this article was not written by Roseland Oil & Gas