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Petrohawk Nearly Doubles Reserves with $1.59B KCS Purchase

Petrohawk Energy Corp. will more than double its production and nearly double its gas reserves with the $1.59 billion (84 million shares of stock and $450 million in cash) purchase of KCS Energy Inc. The merger will create a large independent domestic gas producer focused on the Gulf Coast and Midcontinent with about 980 Bcf of proved reserves, 291 MMcfe/d of production and an enterprise value of $3.7 billion.

The purchase price amounts to about $31.41/share for KCS shareholders, a 10% premium to the KCS closing price on Thursday. Following the transaction, KCS stockholders will own 50% of the combined company, which will retain the Petrohawk Energy name.

KCS shares were up nearly 5% to $30/share by mid afternoon Friday, following the merger announcement. Petrohawk shares had declined 5% by 2 p.m. Friday to $12.97/share.

"The asset quality and fit derived from this transaction are unparalleled in my experience," stated Petrohawk CEO Floyd C. Wilson, who will be CEO, chairman and president of the new company. "KCS is a proven operator; and we believe our combined properties have extraordinary development and exploration potential."

The combination will be primarily focused on basins in East Texas, North Louisiana, the onshore Gulf Coast, West Texas and the Midcontinent. KCS CEO James W. Christmas, who will be vice chairman of the combination, cited significant additional potential in core operating areas. He said the merger "not only delivers immediate value to the stockholders of both companies, but also creates a company well positioned to deliver above average growth in value going forward."

In particular, the two companies cited the value of their combined position in the fast growing Elm Grove and Caspiana fields in the North Louisiana natural gas basin. Their combined asset base includes a total of more than 4,000 identified non-proved drilling locations, as well as 900 proved drilling locations. They cited more than 2 Tcfe of additional resource potential.

Petrohawk, a company grown primarily through strategic acquisitions, and KCS, which has grown predominantly through successful exploration and development activities, are expected to utilize expertise from each company to realize the upside potential within the combined portfolio.

According to the merger agreement, KCS stockholders will receive $9 per share in cash and 1.65 shares of Petrohawk common stock for each share of KCS common stock they own, or collectively $450 million in cash and 84 million Petrohawk common shares, not including outstanding KCS stock options. KCS stock options will convert into Petrohawk options pursuant to the terms of the merger agreement.

The transaction is subject to the approval of the stockholders of Petrohawk and KCS but is expected to be completed during the third quarter of 2006.

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