Notable Mergers and Acquisitions 10/18: (OAS) (SM) (TWMC) (SXI)
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- Select operational results, preliminary financial results for the third quarter of 2016, and an update to full year 2016 guidance
- The acquisition of approximately 55,000 net acres in the heart of the Williston Basin
- The redetermination of its borrowing base, which remained unchanged at $1,150 million, and liquidity outlook
- Update on hedging activity
- Conference call to discuss this press release as well as upcoming conference appearances
Third Quarter 2016 Highlights and Update to Full Year 2016 Guidance
- Average daily production of 48,509 barrels of oil equivalent per day ("Boepd") in the third quarter of 2016 (81% oil) and increased full-year 2016 stand-alone Company guidance of 49,300 to 50,000 Boepd.
- Completed and placed on production 17 gross (7.1 net) operated wells during the third quarter of 2016. As of September 30, 2016, the Company had 80 gross operated wells awaiting completion.
- Completed $300 million public offering of senior unsecured convertible notes due 2023 and $367 million tender of existing senior notes, reducing annualized cash interest by approximately $17 million.
- Estimated capital expenditures ("CapEx") were between $76 million and $81 million for the third quarter of 2016.
"We now have production data results from numerous Bakken and Three Forks wells across multiple DSUs in Wild Basin, including the White unit wells and additional wells completed in 2016," said Thomas B. Nusz, Oasis' Chairman and Chief Executive Officer. "Production from these wells has exceeded our current type curve for Wild Basin of approximately 1,200 MBoe for Bakken and approximately 1,000 MBoe for Three Forks. Therefore, we are increasing our Wild Basin type curves to approximately 1,550 MBoe for Bakken and to approximately 1,200 MBoe for Three Forks. This type curve is based on our four million pound sand slickwater completion technique. The team continues to test the latest completion technologies. Our confidence is growing that increasing proppant loading and stage counts will continue to improve well performance, as we are seeing production uplift in our own tests as well as tests done by other operators in similar operating areas."
Mr. Nusz added, "We have reduced our current well costs down to $5.2 million from $5.9 million on our four million pound sand slickwater well completion technique. The team has done an incredible job improving upon our efficiency gains, and we believe our team has the ability to drive costs even lower. Lastly, I am pleased to report that our gas processing plant in Wild Basin is now online and operating as planned. This has allowed us to flow wells in Wild Basin into our infrastructure over the last couple weeks, and we expect October 2016 production to average over 50,000 Boepd."
Oasis is providing select preliminary unaudited financial results for the third quarter of 2016 and updates to its full year 2016 guidance. Management has prepared, and is responsible for, the preliminary financial data presented below, which is based on the most current information available. The Company's normal financial reporting processes with respect to the preliminary financial data have not been fully completed, and PricewaterhouseCoopers LLP has not audited, reviewed, compiled or performed any procedures with respect to the accompanying preliminary financial data. Accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto. As a result, the Company's actual financial results could be different from this preliminary financial data, and any differences could be material. The following table provides the Company's preliminary estimates for oil prices and differentials and natural gas prices for the third quarter of 2016:
NYMEX West Texas Intermediate Crude oil index price ("WTI") (per Bbl)
Average sales prices:
Oil, without derivative settlements (per Bbl)
$40.50 - $40.60
Natural gas (per Mcf) (1)
$1.80 - $1.90
Natural gas price includes the value for natural gas and natural gas liquids.
During the third quarter of 2016, Oasis produced 48,509 Boepd, of which 81.3% was oil. Oasis had net cash settlement receipts from derivative instruments of $11.8 million in the third quarter of 2016, including receipts from contract settlements in June 2016, July 2016 and August 2016. The Company's derivative instruments do not qualify for and were not designated as hedging instruments for accounting purposes.
The following table provides Oasis' preliminary expense estimates for the third quarter of 2016:
Lease operating expenses ("LOE") ($ per Boe)
$7.95 - $8.05
Marketing, transportation and gathering expenses ("MT&G") ($ per Boe) (1)
$1.55 - $1.65
General and administrative expenses ("G&A") ($MM)
$22.7 - $22.9
Production taxes (% of oil and gas revenue)
9.2% - 9.3%
Excludes non-cash valuation charges on pipeline imbalances and bulk oil purchase.
The following table provides Oasis' updated production and expense guidance for Full Year 2016 as compared to previously announced guidance:
Updated Full YearGuidance
Prior Full YearGuidance
LOE ($ per Boe)
MT&G ($ per Boe) (1)
CapEx ($MM) (2)
Production taxes (% of oil and gas revenue)
Excludes non-cash valuation charges on pipeline imbalances and bulk oil purchase.
Excludes the Williston Basin acquisition.
Williston Basin Acquisition Summary
On October 17, 2016, Oasis signed a purchase and sale agreement to acquire approximately 55,000 net acres and an estimated 226 gross operated drilling locations in the Williston Basin for approximately $785 million. We have internally estimated that as of December 1, 2016, the properties to be acquired will have an estimated 50.2 MMBoe of proved reserves, 63% of which are considered proved developed producing and 77% of which are oil. The properties to be acquired are expected to produce 12,400 Boe/d in the three months ending December 31, 2016. Oasis expects to operate approximately 75% of the properties based on proved reserves.
"This acquisition is a great opportunity to add acreage and inventory that is a natural fit with our existing core and extended core positions and will increase our gross operated drilling locations in our core acreage by approximately 25%," said Mr. Nusz. "With our continued capital efficiency and best-in-class operations in the Williston Basin, we are well positioned to take full advantage of this complementary asset that we believe will generate substantial shareholder accretion based on our currently anticipated acquisition financing."
The following table provides detail on key operational highlights for Oasis and the acquisition.
Net acreage (1)
Production (Boepd) (2)
Gross Core Op Inventory Estimate (3)
Net Core Op Inventory Estimate (3)
Total Net Core Inventory Estimate (3)
Oasis Stand-Alone acreage is as of December 31, 2015.
Oasis Stand-Alone production is based on third quarter 2016 and Acquisition production is based on projected fourth quarter 2016.
Oasis Stand-Alone inventory is based on year-end 2015 counts, adjusted for wells expected to be completed in 2016. Acquisition inventory is based on similar methodology that Oasis used at year-end 2015 on its own inventory.
The effective date for the acquisition is October 1, 2016 and the transaction is expected to close on December 1, 2016. The transaction is subject to customary closing conditions. The Purchase Agreement contains various purchase price adjustments to be calculated as of the closing date.
Liquidity and Long Term Debt
As of September 30, 2016, Oasis had total cash and cash equivalents of $13.8 million. In addition, Oasis had $195.0 million of borrowings and $12.3 million of outstanding letters of credit issued under its revolving credit facility, resulting in an unused borrowing base capacity of $942.7 million as of September 30, 2016.
On October 14, 2016, the Company entered into an amendment to its Second Amended and Restated Credit Agreement with its bank syndicate in connection with the scheduled redetermination of the Company's borrowing base. Following the redetermination, the borrowing base and elected commitments were reaffirmed at $1,150 million. The next redetermination of the Company's borrowing base is scheduled for April 1, 2017.
On September 28, 2016, the Company completed its tender offers to repurchase certain outstanding senior unsecured notes and on September 29, 2016, the underwriters of the Company's senior convertible notes due 2023 exercised the full over-allotment of $25 million, taking total gross proceeds for the senior convertible notes to $300 million. The Company's long-term debt consists of the following:
($ in millions)
Senior secured revolver line of credit
Senior unsecured notes (1)
7.25% senior unsecured notes due 2019
6.5% senior unsecured notes due 2021
6.875% senior unsecured notes due 2022
6.875% senior unsecured notes due 2023
2.625% senior unsecured convertible notes due 2023
Total long-term debt
Excludes deferred financing costs for the senior unsecured notes and the debt discount for the equity component of the 2.625% senior unsecured convertible notes due 2023.
As of October 17, 2016, the Company had the following outstanding commodity derivative contracts, all of which are priced off of WTI and settle monthly:
Volume in Mbopd
Additionally, the Company has swaps priced off of NYMEX Natural Gas of 6,000 mmbtu/d at a weighted average price of $3.21 in 2017.
*** SM Energy Company (NYSE: SM) announced that it has entered into a definitive purchase agreement to acquire 35,700 net acres in Howard and Martin Counties in West Texas, expanding the Company’s Midland Basin footprint to approximately 82,450 net acres. The acquired acreage complements, and is partially contiguous to, the Company’s recently closed Howard County acreage acquisition and includes approximately 2,400 Boe per day net production. The purchase price is $1.1 billion cash, subject to customary purchase price adjustments, plus 13.4 million shares of SM common stock to be issued to the seller. The seller is QStar LLC, a portfolio company of EnCap Investments L.P. and a related entity. The Company also announced today that it has entered into a definitive agreement for the sale of its Williston Basin assets located outside of Divide County for $785 million, subject to customary purchase price adjustments. The purchaser is Oasis Petroleum Inc.
President and Chief Executive Officer Jay Ottoson comments: “Our strategy is straight-forward, we intend to deliver growth in cash flow per debt-adjusted share by being a premier operator of top tier assets. We have established a position as an outstanding operator in the Midland Basin, and with this acquisition we also establish significant scale. We are particularly excited about the performance and future potential of Howard County, leading us to further core up our portfolio and focus on this fast emerging, top tier area.
“As with our initial Howard County acquisition, we expect to immediately employ our operational expertise to the area. Our preliminary plans for Midland Basin activity include adding a fourth rig during the fourth quarter of 2016 and increasing to six rigs in early 2017, thereby increasing our expected aggregate 2016 capital program before acquisitions to approximately $710 million. We continue to work to concentrate capital on the highest return programs and generate higher company-wide margins, which drive cash flow growth and value creation for our shareholders.”
The Company plans to fund the majority of the $1.1 billion cash portion of the acquisition with the proceeds from the Williston Basin asset sale and the remainder under the Company’s revolving line of credit, which has a borrowing base of $1.35 billion, aggregate commitments of $1.25 billion and was undrawn as of October 14, 2016. The Company is issuing to the sellers $500 million in SM Energy common stock based on the 30-day volume-weighted average price of $37.35 per share, or approximately 13.4 million shares. Further, the Company remains on track with the planned sale of its non-operated assets in the Eagle Ford program, which we expect will be a potential source of funding for the acceleration of activity in the Permian Basin over the coming years.
Mr. Ottoson adds: “We are delighted to have QStar/EnCap as new shareholders and believe their desire to take a significant portion of the consideration in stock is a strong vote of confidence in the quality of the QStar acreage and in our Company.”
QStar CEO Gerald Carman comments: “SM Energy will have one of the largest, highest-quality leasehold positions in the Midland Basin, pro forma the QStar transaction, and we believe SM’s operations team is ideally suited to optimize the long-term value of QStar’s excellent asset base. SM is successfully executing a transformation that we view as under-appreciated by the market, and this transaction provides our management team and sponsor significant upside exposure as we will be among SM’s largest shareholders.”
The acquisition is expected to close mid-December, 2016, with an effective date of September 1, 2016, and the divestiture is expected to close early-December, with an effective date of October 1, 2016. Both transactions will be subject to customary purchase price adjustments and subject to the satisfaction of customary closing conditions, and there can be no assurance that either transaction will close on the expected closing date or at all.
Petrie Partners served as exclusive financial advisor to SM Energy in connection with both of the transactions. Jefferies LLC served as sole financial advisor to QStar and EnCap Investments, L.P.
*** Trans World Entertainment Corporation (Nasdaq: TWMC) announced the acquisition of etailz, Inc. in a cash and stock transaction of approximately $75 million, which was unanimously approved by the boards of directors of each company. The acquisition combines the entertainment specialty retailer with a leading digital marketplace retailer. Together, both companies expect to benefit by sharing certain infrastructure, development resources, scale and best operational and digital practices in order to deliver innovation and value to Trans World Entertainment customers, shareholders, business partners and the combined Trans World Entertainment team.
etailz is a leading digital marketplace expert retailer, operating both domestically and internationally. They use a data driven approach to digital marketplace retailing utilizing proprietary software and ecommerce insight coupled with a direct customer relationship engagement to identify new distributors and wholesalers, isolate emerging product trends, and optimize price positioning and inventory purchase decisions. In the past 12 months, etailz sold over 30,000 SKUs from over 2,000 manufacturers and distributors in numerous product categories, primarily through the Amazon Marketplace.
“The structure of the deal allows for continuity, flexibility and incentive to achieve our combined long term goals,” commented Mike Feurer, Trans World’s President and Chief Executive Officer.
Trans World paid $36.2 million in cash and issued 5.7 million shares of TWMC stock at closing to the shareholders of etailz for their shares. Based on the closing stock price on Friday, October 14, the shares had a value of $19.6 million. An earn-out of up to a maximum of $14.6 million will be payable in 2018 and 2019 subject to the achievement by etailz of $6 million in operating income in 2017 and $7.5 million in fiscal 2018. In connection with the acquisition, Trans World assumed the liability for etailz $4.2 million employee retention bonus plan, of which $1.9 million was paid at closing. Shares issued to Josh Neblett, etailz’s Chief Executive Officer, will vest over a two year period. The acquisition and related costs (including paying off outstanding indebtedness under etailz credit facility) were funded primarily from Trans World’s cash on hand and with short term borrowings under its revolving credit facility.
Trans World intends to capitalize upon the specific opportunities afforded by each of FYE and etailz while taking advantage of synergistic revenue and profit pathways through the collaborative energies of the two businesses. The acquisition will enable Trans World Entertainment to continue to build upon its credibility with fans of entertainment by diversifying into the fastest growing segment of retail: the digital marketplace. The result will be expanded choice and value for customers.
"In the past several years, the entertainment based retail industry and the retail landscape in general have experienced tectonic shifts and disruptions necessitating creative and transformative collaborations in order to continue serving customers within such a dynamic and competitive environment,” continued Mr. Feurer. “This acquisition unlocks a unique opportunity for our two companies to engage, compete, and thrive as a true omni-channel retailer. Of equal importance is the professional camaraderie we've developed with etailz as we've worked with CEO Josh Neblett and the etailz management team. This is a timely and significant opportunity to deliver long-term growth and shareholder value under the combination of these two companies. It also affords the additional potential benefit of unlocking Trans World’s $158 million in Federal Net Operating Loss Carryforwards," Mr. Feurer added.
"We are proud of the successful etailz progression over the past 8 years and we are excited to join forces with a company of Trans World’s scale, heritage, and industry reputation. We look forward to accessing the relationships, operational expertise and infrastructure they have built to help unlock the full potential of etailz and accelerating our progress towards being the industry leader for digital marketplace sales and expertise," commented Josh Neblett, Chief Executive Officer of etailz.
etailz will remain headquartered in Spokane, WA.
*** Standex International Corporation (NYSE: SXI) announced that it has acquired South Carolina-based Horizon Scientific, Inc., a supplier of laboratory refrigerators and freezers, as well as cryogenic equipment for the scientific, bio-medical and pharmaceutical markets. Terms of the transaction were not disclosed. Horizon Scientific recorded revenue of approximately $28 million for the trailing 12 months ended September 2016. The acquisition is expected to be accretive to earnings per share by $0.01-$0.02 in fiscal 2017 and $0.07-$0.09 in fiscal 2018, net of purchase accounting and acquisition costs.
“Horizon Scientific enhances Standex’s penetration of the higher margin refrigeration markets represented by the growing scientific sector,” said Standex Chief Executive Officer David Dunbar. “We look forward to offering Horizon Scientific’s well respected products, and working with its customer base and channel partners to expand sales of Standex’s NorLake® Scientific brand into these markets. Horizon Scientific brings us an experienced management team and we welcome the opportunity to build a stronger position in these key markets together.”
“Becoming part of Standex will enable us to achieve Horizon Scientific’s strategic growth objectives faster than we could as an independent company,” said Horizon Scientific Founder and Chief Executive Officer Greg Deutschmann. “We now have access to much broader engineering and manufacturing capabilities, which will enable us to deliver product ideas and customer solutions more quickly. Our longstanding relationships in the pharma, biotech, hospital, medical school and government industries make Horizon Scientific and Standex a great strategic fit.”
“Horizon Scientific has a deep understanding of its key markets, excellent insight into its sales channels and an ability to develop custom solutions very quickly for customers,” said Standex Food Service Equipment Group President Anne De Greef-Safft. “We welcome the entire Horizon Scientific team to Standex and look forward to working together to expand our product portfolio and customer base.”
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