Tag Archives: M&A

SilverBow Resources to be acquired for $2.1 billion

SilverBow Resources, a Houston-based E&P company, has agreed to be acquired by Crescent Energy, also based in Houston, for $2.1 billion. Combined, they will have the second largest production in the Eagle Ford Basin, behind EOG.



SilverBow, has been trying to fight off a takeover by its largest shareholder, Kimmeridge Energy Management. Kimmeridge had effectively offered $34 a share, whereas Crescent’s offer is $38 a share.

SilverBow was formerly known as Swift Energy, which filed for bankruptcy in December 2015. After the company emerged from bankruptcy in April 2016, it changed its name to SilverBow and went public the following year.  The company has taken on a lot of debt as it embarked on an aggressive acquisition and capex program. That attracted the ire of Kimmeridge.

Crescent was formed in December 2021 from the merger of Contango Oil, a publicly-traded company and Independence Energy, a private company. Crescent is controlled by KKR, a large investment firm.

The transaction is structured as an all-stock transaction, though SilverBow shareholders can elect $38 per share cash alternative (up to a maximum total cash consideration of $400 million). Crescent shareholders will own between 69% and 79% of the combined company. The current management of Crescent will run the combined company, which will also retain the Crescent name.

Crescent expects to generate between $65 million and $100 million in cost savings, through cost of capital advantages and elimination of overheads. The companies have many adjacent properties in the Eagle Ford which should also drive savings.

 

Investor Presentation

Schlumberger to buy ChampionX for $7.8 billion

Schlumberger (‘SLB’) has agreed to buy ChampionX for $7.8 billion in an all-stock transaction. ChampionX has its head office in The Woodlands.



ChampionX was formed in 2020 from the merger of Apergy Corporation (itself a spinoff from Dover Corporation) and the upstream division (aka Nalco Champion) of Ecolab. Apergy was primarily involved in Artificial Lift, while Nalco Champion primarily manufactured oilfield chemicals.

In 2023, ChampionX had revenues of $3.8 billion. Two-thirds came from Chemicals, a quarter from Artificial Lift and the rest from Drilling Products and Reservoir Chemical Technologies. The company has 7,300 employees in 38 countries.

SLB, which has a market cap of $79 billion, believes that ChampionX’s focus on production will reduce its cyclical exposure from the drilling side of the business. From a customer’s perspective, E&P companies treat drilling as capex, while production costs are operating expenses.

ChampionX also helps SLB increase its presence in North America. Currently, SLB generates only 21% of its revenues from that region. Compare that to its main rival, Halliburton, which derives 46% of its revenues from North America.

SLB expects to generate $400 million in annual savings by 2027 from eliminating duplicate G&A overheads, reduced operating costs and supply chain optimization.

SLB expects the deal to close in late 2024.

Investor Presentation – SLB ChampionX

Two Houston-area companies get taken over

The number of Houston-area public companies fell by two today as APA completed its acquisition of Callon Petroleum while Kodiak Gas Services closed its deal to buy CSI Compressco. Both acquirers are also based in the Houston-area.



Background to the APA deal

APA (formerly known as Apache) announced its deal for Callon in early January.  The all-stock transaction valued the target at $4.5 billion. Callon is a Permian pure-play with 119,000 net acres in the Delaware Basin and 26,000 acres in the Midland Basin. That dovetails nicely with APA’s Permian basin assets. APA has 84,000 acres in the Delaware Basin and 197,000 in the Midland Basin. The company also has producing assets in Egypt and the North Sea.

APA estimates that they can save $55 million from eliminating duplicate general and administrative expenses and $55 million from operating efficiencies in the Permian.

Callon first had informal merger discussions back in November 2021 with an unidentified publicly-traded E&P operator and continued to have such discussions with various other parties throughout 2022 and 2023.

APA first came into the picture in September 2023 when it engaged financial advisors to review potential transactions. The first contact between the CEOs occurred in October. In the end, APA were competing with another unidentified publicly-traded E&P operator before APA sweetened its proposal on December 29.

SEC filing – 8-K – Completion of Callon acquisition

Background to the Kodiak deal

Kodiak’s $854 million all-stock transaction was announced just before Christmas. CSI was formed in 2000 and went public in 2008. Until January 2021, CSI was effectively controlled by Tetra Technologies, another Houston-area public company. Tetra sold its interest to Spartan Energy Partners, a PE-backed private company, for $30.7 million (plus the elimination of $622 million of net debt).

Ever since Spartan took over, they have been looking to do a deal that would reduce leverage and increase CSI’s scale. It held informal discussions with various parties from January 2021 until September 2023. Kodiak’s CEO initially contacted the CEO of CSI in May 2023 with a view to Kodiak merging into CSI as a pathway for Kodiak to go public.  Instead, Kodiak decided to perform a standalone IPO which it completed in July 2023.

Discussions between the parties paused while Kodiak went through its first quarter as a public company, but began again in September 2023. The deal wasn’t announced until December primarily because the advisors took awhile to figure out the most efficient structure to minimize the tax issues surrounding the CSI partnership.

SEC filing – 8-K – Completion of CSI acquisition

You can see the complete list of Houston-area public companies here.

 

 

Innovex abandons IPO to merge with Dril-Quip

Dril-Quip, a publicly-traded company, is to merge with PE-backed Innovex. Both companies are in oilfield services, and both have their head office in Houston.



It is an all-stock transaction with Dril-Quip shareholders owning 52% of the combined company. However, the company will be renamed Innovex International and the Innovex CEO and CFO will hold those roles in the combined company. Innovex had filed to go public in January 2024.

Dril-Quip has a market capitalization of $825 million and revenues of $478 million and adjusted EBITDA of $59 million. Innovex has revenues of $556 million and adjusted EBITDA of $132 million.

Complementary overlap of products

Dril-Quip was formed in 1981 and went public in 1997. It started out producing oilfield equipment to be used offshore (either subsea or on offshore platforms). In 2023, it purchased a Canadian wellhead business for $80 million to increase its onshore presence.

Innovex was formed in 2016 through the merger of three oilfield service companies that were separately owned by Intervale Capital. The companies were primarily involved in downhole tools and products, mostly onshore. Innovex has made a number of acquisitions since to increase its offshore and international presence. Intervale renamed itself to Amberjack Capital Partners in 2021.

Dril-Quip has its corporate office in NW Houston while Innovex is based in Humble. The company expects to achieve $30 million in synergy cost savings through removing duplicate corporate functions, manufacturing optimization and supply chain savings.

The new management

Adam Anderson will be the CEO of the combined business. He was the CEO of one of the three companies that merged to form Innovex. Kendal Reed, CFO of Innovex since 2019, will be CFO of the combined business. Prior to joining Innovex, he worked at Amberjack, the PE-firm and Piper Sandler investment bank.

Dril-Quip Executive Payout

Dril-Quip CEO Jeff Bird and CFO Kyle McClure don’t have roles in the combined business and will receive large payments following the change of control. The annual proxy statement for 2023 has not yet been released. According to the proxy filed for 2022, Mr. Bird would have been paid a package worth $10.2 million (assuming a termination date of December 31, 2022). For Mr. McClure, the equivalent figure was $4.8 million.

The deal is expected to close in the third quarter.

Investor Presentation – Dril-Quip Innovex

 

Apache to acquire Callon for $4.5 billion

APA Corporation (formerly known as Apache) has agreed to acquire Callon Petroleum in an all-stock transaction that values Callon at $4.5 billion. The proforma ownership will be 81% APA and 19% Callon. Both companies have their corporate offices in Houston.



Callon is a Permian pure-play with 119,000 net acres in the Delaware Basin and 26,000 acres in the Midland Basin. That dovetails nicely with APA’s Permian basin assets. APA has 84,000 acres in the Delaware Basin and 197,000 in the Midland Basin. The company also has producing assets in Egypt and the North Sea.

APA estimates that they can save $55 million from eliminating duplicate general and administrative expenses and $55 million from operating efficiencies in the Permian. In addition, they believe that they can save $40 million in interest costs from having a lower interest on debt.

Assuming the employment of the Callon executive officers is terminated after the deal goes through, they will be entitled to large compensation payments. According to the last annual proxy, CEO Joe Gatto will receive compensation worth $16.9 million (3x base salary and target bonus). The other four officers will receive a combined $22 million (2x base salary and target bonus for each named officer).

The transaction is expected to close in the second quarter of 2024.

SEC filing – 8-K APA Callon acquisition

Via Renewables to be taken private by Chairman

Via Renewables, an independent retail energy services company is to be taken private by Chairman and CEO Keith Maxwell for $11 per share. The price values Via at $70 million and is a 20% premium to the 30 day average price.



The company, which has its head office in west Houston, operates in 20 states and has approximately 337,000 residential customers. Mr. Maxwell founded the company, then known as Spark Energy, in 1999 and took it public in 2014.

Last year was a rough one for the company as volatility in natural gas prices impacted its profitability in 2022 which caused the dividend to be suspended in April 2023. Prior to the recent run up, the stock price was down about 75% from its peak in early 2023.

Mr. Maxwell directly or indirectly owns 66% of the common stock, so the deal has a strong chance of going through. The added twist is that a majority of the holders of the stock, not owned by Mr. Maxwell and the directors, also have to approve the deal.

The deal was negotiated on behalf of the company by a Special Committee of its Board of Directors with the assistance of independent financial and legal advisors. According to the company, the Special Committee is comprised by ‘entirely disinterested and independent directors’.

While that is technically true, two of the three independent directors have historical ties to Mr. Maxwell, who was previously the Chairman and CEO of Marlin Midstream. Amanda Bush is a former CFO at both Via and Marlin, while Nick Evans is a former director of Marlin.

The agreement provides for a ‘go-shop’ period of 30 days where the Special Committee will be permitted to seek competing offers from third parties.

The transaction is expected to close in the second quarter of 2024.

SEC filing – 8-K – Via Renewables

Kodiak to acquire CSI Compressco for $854 million

Kodiak Gas Services, based in Montgomery, TX, has agreed to buy CSI Compressco LP, based in The Woodlands. The deal is an all-stock transaction that values CSI at $854 million (including the assumption of $619 million of net debt).

That represents $1.65 per CSI stock unit. For most of 2023 the units have been priced around $1.20 to $1.40. At the beginning of December, the price spiked to $2 per unit.



The transaction creates the largest contract compression fleet in the US with 4.3 million revenue-generating horsepower. Compression is used in various parts of the Energy industry such as compressing natural gas to the required pressures used in processing facilities or pressurizing gas lift systems for field-wide reinjection to lift oil.

CSI was formed in 2000 and went public in 2008. Until January 2021, CSI was effectively controlled by Tetra Technologies, another Houston-area public company. Tetra sold its interest to Spartan Energy Partners, a PE-backed private company, for $30.7 million (plus the elimination of $622 million of net debt).

Kodiak went public in June 2023 in a $256 million IPO. The company currently has a market cap of $1.5 billion.

Kodiak is projecting $20 million of annualized cost savings from the acquisition, though no details were given about the savings

The transaction is expected to close in Q2 2024.

https://ir.kodiakgas.com/news-events/press-releases/detail/18/kodiak-gas-services-inc-to-acquire-csi-compressco-lp-in

 

Houston SPAC to take Silica company public in $708m deal

Pyrophyte Acquisition Corp, the Houston special purchase acquisition company (SPAC) , chaired by Dr. Bernard Duroc-Danner (the former Weatherford CEO) is to take Sio Silica public. Sio, based in Calgary, intends to extract high-quality quartz silica, which is used in solar panels, semiconductors and batteries. The deal values Sio at $708 million enterprise value.



Pyrophyte went public in October 2021 in a $175 million initial public offering (IPO). The company said it would seek targets involved in energy transitions. That could mean renewable power generation, energy storage, zero-emission transportation, carbon capture or zero/low-carbon industrial applications.

Originally, Pyrophyte had until April 2023 to complete a deal, otherwise it would have to refund the monies from the IPO. Just before the original deadline date, shareholders approved an extension to April 2024.

The Mine

Sio is developing the Vivian Sand Project, southeast of Winnipeg, Canada, which is one of the highest natural purity silica deposits in the world. Most of the world’s silica is too impure to be used in high-end products such as semiconductors. It can only be used in other products such as agriculture, low quality glass, coatings and energy. Some low-quality silica can be converted to high purity silica but at a cost of $70-$100 per ton (and most of this silica is located in Australia).

Valuation

The project is estimated to have a net present value (NPV) of $3.9 billion, using a 10% discount rate. The payback period is projected to be just over one year. The transaction values the equity of the company at 19% of the NPV. Developers of copper and lithium deposits that are not yet in production are typically valued at around 50% of NPV.

Sio will use the proceeds of the deal to fund the Phase 1 construction. It expects the project to be operational within 18 months of close.

Political risk?

Interestingly, the investor presentation doesn’t mention that the go-ahead for the project requires the approval of the Manitoba Minister of Environment and Climate. In the Manitoba elections last month, the government switched from the center-right party (Progressive Conservative Party) to the left-leaning New Democratic Party. I suspect the new Minister is in no rush to make a decision.

[UPDATE – 02-16-24 –  The Manitoba government has denied the application to issue an environmental license for the project.]

The deal is expected to close in the first half of 2024.

Investor Presentation

 

Earthstone Energy to be acquired for $4.5 billion

Earthstone Energy, based in The Woodlands, has agreed to be acquired by Permian Resources in an all-stock transaction worth $4.5 billion. The executives of PR will run the combined business from its headquarters in Midland. Earthstone’s shareholders will get 27% of the combined business.

[UPDATE – 11-01-23 The deal has been completed.]



Both companies operate exclusively in the Permian Basin. Combined they will have 403,000 net acres and run 11 drilling rigs. They will be the sixth largest producer in the Permian.

Earthstone was formed in 1969 as Basic Earth Science Systems. Initially, it was based in Denver and operated in Montana and North Dakota of the Bakken. The company changed its name to Earthstone Energy in 2010 and went public the following year.

In December 2014, Oak Valley Resources, a Houston-based company completed a reverse takeover of Earthstone for $138 million.  Oak Valley founder and CEO Frank Lodzinski is now the Chairman of Earthstone.

The history of Permian Resources starts with Colgate Energy Partners. It was formed in 2015 with backing from private equity firms Pearl Energy Investments and NGP. Colgate went public in September 2022, via a merger with Centennial Resource Development. The combined company was renamed Permian Resources.  Centennial was originally taken public in 2016 by a SPAC founded by Mark Papa, who built EOG Resources and was backed by Riverstone.

In June, Earthstone agreed to buy a two-thirds interest in Novo Oil and Gas for $1 billion. Novo is a Delaware Basin E&P operator, backed by EnCap Investments. In 2022, it made three separate acquisitions for $1.5 billion.

Permian is targeting $175 million of cost synergies, mainly through lower drilling costs. The savings include $30 million for general and administrative costs or 50% of Earthstone’s current cash G&A costs.

Earthstone compensation

I tried to determine what payouts would be due to the senior management of Earthstone in the event they left as a result of the takeover. Unfortunately, unlike most of their peers, the company didn’t publish a summary compensation table for that event. However, CEO Robert Anderson would get 3x base salary and bonus (about $3.9 million), while other executives would get 2x (about $2.1 million each).

Interestingly, most of the unvested stock held by the Earthstone management vests (or has vested) this year. That’s worth around $15 million for Mr. Anderson and around $8 million or so for each of the other executives.

The deal is expected to close by the end of 2023.

SEC filing – Investor Presentation

 

Houston midstream company to be acquired for $7.1 billion

Energy Transfer has agreed to acquire Crestwood Equity Partners in an all-stock transaction that values Crestwood at $7.1 billion enterprise value.

Crestwood is a midstream company that primarily has gathering and processing assets in the Williston Basin in the Bakken, the Delaware Basin in the Permian, and, to a lesser extent, the Powder River Basin in Wyoming. The company was formed in 2001 and went public in 2013 following a merger with Inergy Midstream.



In the past couple of years, the company has been streamlining its portfolio, selling assets in the Marcellus and Barnett shale basins and buying Oasis Midstream (Williston Basin) for $1.7 billion in February 2022.  It has its head office in downtown Houston.

ET has its head office in Dallas and is a much bigger company. Its market capitalization is $39 billion, compared to just $2.8 billion for Crestwood.

ET believes it can achieve cost synergies of $40 million a year. In addition, it should be able to refinance the debt acquired in the deal at a lower interest rate.

The Crestwood executive management are in line for big change-of-control payments, assuming they are terminated as a result of the deal. Bob Phillips, Chairman and CEO, who joined Crestwood in 2007, will receive $20 million. This includes the value of accelerated stock units. The other five senior executives will get a combined $36 million.

The deal is expected to close in Q4 2023.

Investor Presentation