Brigham Minerals (MNRL) is going to merge with STR - Sept 6

Brigham Minerals (MNRL) is going to merge with STR - Sept 6

Postby dan_s » Tue Sep 06, 2022 9:30 am

Sitio Royalties and Brigham Minerals to Combine in $4.8 Billion All-Stock, At-Market Merger, Forming a Premier Consolidator of Oil and Gas Mineral and Royalty Interests < Both companies are in our High Yield Income Portfolio.

DENVER & AUSTIN, Texas--(BUSINESS WIRE)-- Sitio Royalties Corp. (NYSE: STR) (“Sitio”, "STR" or the “Company”) and Brigham Minerals, Inc. (NYSE: MNRL) (“Brigham Minerals”, “MNRL” or “Brigham”) today announced that they have entered into a definitive agreement to combine in an all-stock merger, with an aggregate enterprise value of approximately $4.8 billion based on the closing share prices of STR and MNRL on Friday, September 2, 2022. The combination brings together two of the largest public companies in the oil and gas mineral and royalty sector with complementary high-quality assets in the Permian Basin and other oil-focused regions, creating an industry leader with a proven track record of consolidating oil and gas mineral and royalty interests operated by a diverse set of E&P companies.

TRANSACTION HIGHLIGHTS

> Combination creates an industry leader, with complementary high-quality assets in the Permian Basin and other active U.S. oil basins; combined company expected to be a premier consolidator in the fragmented minerals space

> 259,510 net royalty acres on a combined basis, pro forma 2Q 2022 net production of 32.8 Mboe/d and 50.3 net line-of-sight wells operated by a well-capitalized, diverse set of E&P companies as of June 30, 2022

> Combined company expected to benefit from a step-change in greater scale, enhanced margins, and increased access to capital, leading to accelerated consolidation potential, attractive returns and long-term value for stakeholders

> Transaction expected to generate approximately $15 million of annual operational cash cost synergies and to reduce Sitio’s 2Q 2022 pro forma cash G&A per Boe by 19% to approximately $1.72 per Boe for the combined company

> Strong balance sheet with pro forma 2Q 2022 leverage of approximately 1.0x

> Merger to increase Sitio’s public float by 5.8x, from approximately $320 million to approximately $1.9 billion based on Sitio’s Class A share closing price as of September 2, 2022

At-market merger results in Sitio and Brigham shareholders receiving approximately 54% and 46% of combined company, respectively, on a fully diluted basis
> Balanced capital allocation framework that prioritizes return of capital to shareholders at a minimum 65% payout ratio, while using retained cash to protect the balance sheet and opportunistically fund cash acquisitions

> Board of Directors of combined company will consist of 9 total directors, including 5 directors nominated by Sitio and 4 directors nominated by Brigham; Noam Lockshin, the current Chairman of Sitio’s Board, to serve as Chairman of the Board of the combined company

> Shared commitment to prioritizing best-in-class corporate governance practices including management incentive compensation and capital allocation that is well-aligned with shareholder interests to drive long-term returns

> Current Sitio management team to run combined company, which will retain the Sitio Royalties Corp. company name

MANAGEMENT COMMENTARY

Chris Conoscenti, Chief Executive Officer of Sitio, commented, “Our merger with Brigham Minerals brings together two complementary businesses that are aligned in every key way, and further advances the business plan that Sitio outlined earlier in the year following the merger of Sitio’s predecessor companies. Both companies are focused on asset quality, maintain disciplined acquisition underwriting standards, understand the benefits of scale, and prioritize shareholder alignment in our approaches to capital allocation and best-in-class governance. We have been particularly impressed with the asset portfolio that the Brigham team has built and their track record of delivering consistent results every quarter since they became public.”

Mr. Conoscenti continued, “We believe that achieving material scale in this industry is critical to creating sustained value for our stakeholders and distinguishing Sitio from others, which is why we have been so focused on employing a differentiated, large-scale consolidation strategy. Our combined company will be the largest publicly traded mineral and royalty company in the U.S. by enterprise value that is focused on consolidation across a diverse set of operators and geographies. We will be able to pursue opportunities that few others can because of the size of our business, strength of our balance sheet, optimized cost structure and access to capital.”

“I’m extremely proud of the Brigham team’s incredible efforts over the past 10 years to assemble an outstanding portfolio of diversified mineral interests across four of the highest quality oil weighted basins under high performing, active operators. Our merger with Sitio creates the industry leading powerhouse in the minerals space with over 30% coverage in the Permian Basin, approximately 100 rigs running across all of our operating basins and greater than 50 activity wells to continue to drive production and cash flow growth. We believe the merger is the logical next step in the continued evolution of the minerals space and creates an entity of scale with ever improving liquidity and float, as well as a streamlined cost structure that further reinforces the scalability of our industry. Overall, I could not be more excited about the future prospects of the combined company to continue to focus on creating value for shareholders through mineral consolidation.” said Robert M. (“Rob”) Roosa, Chief Executive Officer of Brigham.

TRANSACTION DETAILS

Under the terms of the definitive merger agreement, Brigham shareholders will receive a fixed exchange ratio of 1.133 shares of common stock in the combined company for each share of Brigham common stock owned on the closing date, and Sitio’s shareholders will receive one share of common stock in the combined company for each share of Sitio common stock owned on the closing date. Brigham’s and Sitio’s Class A shareholders will receive shares of Class A common stock in the combined company, and Brigham’s Class B and Sitio’s Class C shareholders will receive shares of Class C common stock in the combined company as merger consideration. Based on the exchange ratio and the closing price of Sitio’s Class A common stock on September 2, 2022, the combined company would have an aggregate enterprise value of $4.8 billion. Upon completion of the transaction, Sitio shareholders will own approximately 54.0% and Brigham shareholders will own approximately 46.0% of the combined entity on a fully diluted basis.

The transaction has been unanimously approved by the boards of directors of both companies. Funds managed by Kimmeridge, Blackstone and Oaktree, which own 43.5%, 24.8% and 15.4% of the outstanding shares of Sitio, respectively, have entered into support agreements to vote in favor of the transaction.

The closing of the merger, which is expected to occur in the first quarter of 2023, is subject to customary closing conditions, including regulatory clearance and approvals by the shareholders of Sitio and Brigham. Sitio intends to continue paying its quarterly cash dividend and Brigham intends to pay both its fixed and variable quarterly dividend through closing of the transaction.

STRATEGIC RATIONALE

Creating a premier consolidator of oil and gas mineral and royalty interests. The combined company will be the largest publicly traded mineral and royalty company in the U.S. focused on industry consolidation across diverse operators and geographies. As a significantly larger entity than either company on a standalone basis, the combined company will have increased access to capital and the scale to execute on a wider universe of acquisition opportunities, which is a catalyst for accelerating the consolidation of the highly fragmented mineral and royalty interest sector and driving returns for shareholders. Since June of 2021, and including this transaction, Sitio has consolidated more than 195,000 net royalty acres (“NRAs”) through six large-scale transactions, reducing cash G&A per barrel of oil equivalent and improving margins with each acquisition.

Top-tier diversified oil-weighted mineral and royalty interest portfolio focused on the front end of operators’ cost curves is unique and difficult to replicate. Sitio and Brigham have been independently building their high-quality mineral and royalty interest portfolios through a series of hundreds of transactions since 2016 and 2012, respectively, and have built sizable positions in some of the most active oil and gas basins in the U.S., including the Permian Basin, Eagle Ford, DJ Basin, Williston Basin, Anadarko Basin and Appalachia Basin. As of June 30, 2022, the combined company had 50.3 net line-of-sight wells comprised of 29.8 net spuds and 20.5 net permits, a leading indicator for strong near-term activity. The combined company’s asset portfolio is anchored by large-scale diversified Permian Basin mineral and royalty interests, which comprise over 182,500 NRAs, has gross drilling spacing units that cover approximately 32% of total Permian Basin acreage and had exposure to more than 34% of all wells drilled in the Permian Basin in 2021.

Significant synergies enhance cost structure, operating efficiencies and drive attractive Discretionary Cash Flow profile. Thecombined company expects to generate approximately $15 million of annual operational cash cost synergies, resulting in enhanced future margins and Discretionary Cash Flow generation relative to standalone Sitio or Brigham. The merger will reduce Sitio’s projected cash G&A per barrel of oil equivalent from $2.31 to $1.694. Investments made in technology by both Sitio and Brigham should allow the combined company to continue to consolidate the highly fragmented oil and gas mineral and royalty interest sector with limited additional overhead.

Substantial public float of nearly $2 billion. The combinedcompany’s public float would be $1.9 billion5, the third largest of any oil and gas mineral and royalty company traded on a U.S. stock exchange and represents a 5.8x increase over Sitio’s standalone float. The combined company expects this improved float will widen the viable universe of potential investors and will support demand for the combined company’s stock.

Strong balance sheet and liquidity. The all-stock merger reduces Sitio’s pro forma 2Q 2022 leverage ratio from 1.4x to approximately 1.0x based on pro forma net debt / 2Q 2022 annualized Adjusted EBITDA. The combined company will target long-term leverage of less than 1.0x, with the ability temporarily go above that target for strategic acquisitions and will also have significant liquidity. As of August 31, 2022, Sitio and Brigham had combined cash on hand of $31.0 million, combined revolving credit facility borrowing bases of $590 million and combined undrawn capacity under their credit facilities of $122.5 million.

Upon the merger closing, the combined company is expected to have a single credit facility with a borrowing base that includes the impact from assets acquired from Foundation Minerals, Momentum Minerals and Avant Natural Resources (“Avant”), which are currently not included in either company’s standalone borrowing base. Additionally, the combined company’s increased scale and enhanced credit profile is expected to enhance access to capital and reduce the overall cost of capital relative to Sitio and Brigham on a standalone basis.

Combining best practices, years of industry experience and long-standing relationships. The combined company intends to integrate best practices and utilize the expansive networks of each predecessor to drive continued success and unlock new opportunities. This includes executing on proven mineral and royalty interest consolidation methodologies that span the entire spectrum of large scale to smaller acquisition opportunities and utilizing proven acquisition underwriting frameworks. The combined company also intends to leverage its existing proprietary data management systems to continue to streamline operations and ensure timely and accurate cash collections on its royalties.

Commitment to ESG with an emphasis on best-in-class corporate governance. Sitio and Brigham both have strong commitments to industry-leading corporate governance that are well-aligned with shareholder interests and linked to total shareholder returns. The combined company will have no scope 1 emissions, negligible scope 2 emissions and will target mineral and royalty interests under operators with strong environmental track records.
Dan Steffens
Energy Prospectus Group
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Re: Brigham Minerals (MNRL) is going to merge with STR - Sep

Postby SergioSays » Tue Sep 06, 2022 10:42 am

Will be interesting to see the hedging strategy from the NewCo. I'm guessing if Sitio is calling the shots, then their current hedging philosophy will carry forward.
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Re: Brigham Minerals (MNRL) is going to merge with STR - Sep

Postby Fraser921 » Tue Sep 06, 2022 1:32 pm

MNRL is down 3 %, STR unchanged. Looks like the market doesn't like it for MNRL.
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Re: Brigham Minerals (MNRL) is going to merge with STR - Sep

Postby dan_s » Tue Sep 06, 2022 3:55 pm

Lots of red on the screen today, so don't read too much into the one day move.

Brigham's Team is very sharp and they did not need to make a deal, nor would they accept a bad deal. This is a merger of near equals, which lowers G&A and lowers risk. Size does matter in this business.
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Energy Prospectus Group
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Re: Brigham Minerals (MNRL) is going to merge with STR - Sep

Postby Fraser921 » Tue Sep 06, 2022 5:34 pm

Yes, I still like them

https://investors.brighamminerals.com/news-and-events/press-releases-details/2022/Sitio-Royalties-and-Brigham-Minerals-to-Combine-in-4.8-Billion-All-Stock-At-Market-Merger-Forming-a-Premier-Consolidator-of-Oil-and-Gas-Mineral-and-Royalty-Interests/default.aspx
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