I am going to update my forecast model for the impact of the transactions announced below:
DENVER--(BUSINESS WIRE)--Aug. 8, 2016-- SM Energy Company (NYSE: SM) today announced that it has entered into a definitive purchase agreement to acquire 24,783 net acres in Howard County, West Texas, expanding the Company’s Midland Basin footprint to approximately 46,750 net acres. The acquired acreage position is largely contiguous and includes approximately 4,900 Boe per day net production (with two new wells coming on-line August 2016) and 6 MMBoe of proved developed producing reserves. The purchase price is $980 million and the seller is Rock Oil Holdings LLC.
President and Chief Executive Officer Jay Ottoson comments: “We are demonstrated leaders in operational performance in the Midland Basin, and we have been looking for some time to expand our asset base, in the right location under the right terms. This is a negotiated transaction for assets in Howard County, a region of the Midland Basin that is emerging as a top tier area for well performance.
“Our operational expertise in the region can be immediately applied to the acquisition assets. We expect that the implementation of pad drilling, reservoir modeling, zipper frac’s, and leading edge completion technologies will add value from the start. We anticipate running one rig in the area in the fourth quarter of 2016 and two rigs throughout 2017. As a result, we are increasing our estimate of total capital spend for 2016 by approximately $15-20 million.
“Continued portfolio management, concentrating capital allocation to highest return programs and operating at peer leading performance levels will allow us to generate higher company-wide margins, cash flow growth and value creation for our shareholders going forward.”
The transaction is expected to close on October 4, 2016, with an effective date of September 1, 2016 and will be subject to customary purchase price adjustments. The closing of the transaction is subject to the satisfaction of customary closing conditions, and there can be no assurance that the transaction will close on the expected closing date or at all.
As provided above, average production represents the July 2016 average, on a 3-stream basis, and proved developed producing reserves are estimated by SM Energy and have not been verified by a third party.
Jefferies served as lead financial advisor to Rock Oil LLC. Petrie Partners also acted as a financial advisor to Rock Oil.
SM Energy Acquistion
SM Energy Acquistion
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: SM Energy Acquistion
SM Energy Prices Upsized $150,000,000 Public Offering of Senior Convertible Notes Due 2021
DENVER--(BUSINESS WIRE)--Aug. 9, 2016-- SM Energy Company (“SM Energy”) (NYSE: SM) announced today that it has priced an upsized offering of $150,000,000 aggregate principal amount of its 1.50% senior unsecured convertible notes due 2021 (the “Notes”). The offering was upsized from the previously announced offering of $100,000,000 aggregate principal amount of Notes. The Notes will be issued at par. SM Energy has also granted the underwriters a 30-day option to purchase up to an additional $22,500,000 aggregate principal amount of the Notes. The offering is expected to close on August 12, 2016, subject to customary closing conditions.
SM Energy intends to use the net proceeds from the offering of the Notes to pay the cost of the capped call transactions described below and the remainder to pay a portion of the purchase price for its recently announced acquisition of all of the outstanding membership interests of an entity holding undeveloped leasehold interests, producing wells and associated infrastructure assets in the Midland Basin of west Texas from Rock Oil Holdings LLC. If this acquisition does not close, SM Energy intends to use the remainder of the net proceeds for general corporate purposes.
The Notes will be senior unsecured obligations of SM Energy. The Notes will bear interest at a rate of 1.50% per annum, payable semi-annually on January 1 and July 1 of each year, beginning on January 1, 2017. The Notes will be convertible into cash, shares of SM Energy's common stock or a combination of cash and shares of SM Energy's common stock, at SM Energy's election. The Notes will mature on July 1, 2021, unless earlier converted or repurchased in accordance with their terms prior to such date. Prior to January 1, 2021, the Notes will be convertible only upon the occurrence of certain events and during certain periods, and thereafter, at any time until the second scheduled trading day immediately preceding the maturity date. The initial conversion rate will be 24.6914 shares of common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $40.50 per share of common stock). The conversion rate will be subject to adjustment in some events but will not be adjusted for accrued and unpaid interest. SM Energy may not redeem the notes prior to the maturity date.
In connection with the pricing of the Notes, SM Energy has also entered into privately negotiated capped call transactions with one or more of the underwriters or their affiliates (the “option counterparties”). The capped call transactions are expected generally to reduce potential dilution to SM Energy’s common stock upon any conversion of Notes and/or offset any cash payments SM Energy is required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap. If the underwriters exercise their overallotment option, SM Energy expects to enter into additional capped call transactions with the option counterparties.
In connection with establishing their initial hedge of the capped call transactions, the option counterparties or their respective affiliates entered into various derivative transactions with respect to SM Energy’s common stock concurrently with or shortly after the pricing of the Notes. This activity could increase (or reduce the size of any decrease in) the market price of SM Energy’s common stock or the Notes at that time.
In addition, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to SM Energy’s common stock and/or purchasing or selling SM Energy’s common stock or other securities of SM Energy in secondary market transactions following the pricing of the Notes and prior to the maturity of the Notes (and are likely to do so during any observation period related to a conversion of Notes). This activity could also cause or avoid an increase or a decrease in the market price of SM Energy’s common stock or the Notes, which could affect holders’ ability to convert the Notes and, to the extent the activity occurs during any observation period related to a conversion of Notes, it could affect the number of shares and value of the consideration that a holder will receive upon conversion of the Notes.
DENVER--(BUSINESS WIRE)--Aug. 9, 2016-- SM Energy Company (“SM Energy”) (NYSE: SM) announced today that it has priced an upsized offering of $150,000,000 aggregate principal amount of its 1.50% senior unsecured convertible notes due 2021 (the “Notes”). The offering was upsized from the previously announced offering of $100,000,000 aggregate principal amount of Notes. The Notes will be issued at par. SM Energy has also granted the underwriters a 30-day option to purchase up to an additional $22,500,000 aggregate principal amount of the Notes. The offering is expected to close on August 12, 2016, subject to customary closing conditions.
SM Energy intends to use the net proceeds from the offering of the Notes to pay the cost of the capped call transactions described below and the remainder to pay a portion of the purchase price for its recently announced acquisition of all of the outstanding membership interests of an entity holding undeveloped leasehold interests, producing wells and associated infrastructure assets in the Midland Basin of west Texas from Rock Oil Holdings LLC. If this acquisition does not close, SM Energy intends to use the remainder of the net proceeds for general corporate purposes.
The Notes will be senior unsecured obligations of SM Energy. The Notes will bear interest at a rate of 1.50% per annum, payable semi-annually on January 1 and July 1 of each year, beginning on January 1, 2017. The Notes will be convertible into cash, shares of SM Energy's common stock or a combination of cash and shares of SM Energy's common stock, at SM Energy's election. The Notes will mature on July 1, 2021, unless earlier converted or repurchased in accordance with their terms prior to such date. Prior to January 1, 2021, the Notes will be convertible only upon the occurrence of certain events and during certain periods, and thereafter, at any time until the second scheduled trading day immediately preceding the maturity date. The initial conversion rate will be 24.6914 shares of common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $40.50 per share of common stock). The conversion rate will be subject to adjustment in some events but will not be adjusted for accrued and unpaid interest. SM Energy may not redeem the notes prior to the maturity date.
In connection with the pricing of the Notes, SM Energy has also entered into privately negotiated capped call transactions with one or more of the underwriters or their affiliates (the “option counterparties”). The capped call transactions are expected generally to reduce potential dilution to SM Energy’s common stock upon any conversion of Notes and/or offset any cash payments SM Energy is required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap. If the underwriters exercise their overallotment option, SM Energy expects to enter into additional capped call transactions with the option counterparties.
In connection with establishing their initial hedge of the capped call transactions, the option counterparties or their respective affiliates entered into various derivative transactions with respect to SM Energy’s common stock concurrently with or shortly after the pricing of the Notes. This activity could increase (or reduce the size of any decrease in) the market price of SM Energy’s common stock or the Notes at that time.
In addition, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to SM Energy’s common stock and/or purchasing or selling SM Energy’s common stock or other securities of SM Energy in secondary market transactions following the pricing of the Notes and prior to the maturity of the Notes (and are likely to do so during any observation period related to a conversion of Notes). This activity could also cause or avoid an increase or a decrease in the market price of SM Energy’s common stock or the Notes, which could affect holders’ ability to convert the Notes and, to the extent the activity occurs during any observation period related to a conversion of Notes, it could affect the number of shares and value of the consideration that a holder will receive upon conversion of the Notes.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: SM Energy Acquistion
SM Energy Announces Pricing of Upsized Common Stock Offering
DENVER--(BUSINESS WIRE)--Aug. 9, 2016-- SM Energy Company (“SM Energy”) (NYSE: SM) announced today that it priced an upsized underwritten public offering of 16,000,000 shares of common stock for gross proceeds of approximately $480 million. The offering was upsized from the previously announced offering of 15,000,000 shares of common stock. SM Energy also granted the underwriters a 30-day option to purchase up to 2,400,000 additional shares of common stock. The offering is expected to close on August 12, 2016, subject to customary closing conditions.
SM Energy intends to use the net proceeds from the offering to pay a portion of the purchase price for its recently announced acquisition of all of the outstanding membership interests of an entity holding undeveloped leasehold interests, producing wells and associated infrastructure assets in the Midland Basin of west Texas from Rock Oil Holdings LLC. If this acquisition does not close, SM Energy intends to use the net proceeds for general corporate purposes.
Wells Fargo Securities, BofA Merrill Lynch, J.P. Morgan, Barclays, BBVA and RBC Capital Markets will act as joint book-running managers for the offering.
DENVER--(BUSINESS WIRE)--Aug. 9, 2016-- SM Energy Company (“SM Energy”) (NYSE: SM) announced today that it priced an upsized underwritten public offering of 16,000,000 shares of common stock for gross proceeds of approximately $480 million. The offering was upsized from the previously announced offering of 15,000,000 shares of common stock. SM Energy also granted the underwriters a 30-day option to purchase up to 2,400,000 additional shares of common stock. The offering is expected to close on August 12, 2016, subject to customary closing conditions.
SM Energy intends to use the net proceeds from the offering to pay a portion of the purchase price for its recently announced acquisition of all of the outstanding membership interests of an entity holding undeveloped leasehold interests, producing wells and associated infrastructure assets in the Midland Basin of west Texas from Rock Oil Holdings LLC. If this acquisition does not close, SM Energy intends to use the net proceeds for general corporate purposes.
Wells Fargo Securities, BofA Merrill Lynch, J.P. Morgan, Barclays, BBVA and RBC Capital Markets will act as joint book-running managers for the offering.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: SM Energy Acquistion
As a result of the transactions above my valuation of SM increases slightly to $50.00/share. This compares to First Call's price target of $33.10.
It will take Wall Street analysts several days to update their SM forecasts, but I expect the First Call price target to go up. The Midland Basin acquisition sets up a new Core Area for SM in the Permian Basin. Permian Basin companies trade at a much higher multiple of CFPS from operations than where SM has been for several years.
Committing to a two rig drilling program in the acquired leases will significantly increase production in 2017, probably much more than what I am using in my forecast model.
SM already generates strong cash flow from operations:
2014 Actual = $21.10 /share
2015 Actual = $13.48/ share
2016 Forecast = $8.01 / share (using share count after the equity being sold this month for all of 2016)
2017 Forecast = $11.84 / share
All of the other Permian Basin companies in the Sweet 16 ( XEC, CXO, EOG, FANG, PE and PXD) trade at more than 11X 2016 forecast cash flow per share.
SM will be presenting to a full house at the Enercom Conference in Denver next week.
It will take Wall Street analysts several days to update their SM forecasts, but I expect the First Call price target to go up. The Midland Basin acquisition sets up a new Core Area for SM in the Permian Basin. Permian Basin companies trade at a much higher multiple of CFPS from operations than where SM has been for several years.
Committing to a two rig drilling program in the acquired leases will significantly increase production in 2017, probably much more than what I am using in my forecast model.
SM already generates strong cash flow from operations:
2014 Actual = $21.10 /share
2015 Actual = $13.48/ share
2016 Forecast = $8.01 / share (using share count after the equity being sold this month for all of 2016)
2017 Forecast = $11.84 / share
All of the other Permian Basin companies in the Sweet 16 ( XEC, CXO, EOG, FANG, PE and PXD) trade at more than 11X 2016 forecast cash flow per share.
SM will be presenting to a full house at the Enercom Conference in Denver next week.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group