With an eye toward expanding its position in the Barnett Shale play in North Texas, Range Resources entered into an agreement to buy Fort Worth-based Stroud Energy Inc. for $456 million, including $82 million in assumed debt. The purchase gives Range 171 Bcfe of proved reserves and 33 MMcf/d of production, half of which is from the Barnett Shale.
Privately owned Stroud also has operations in the Cotton Valley in East Texas and the Austin Chalk in Central Texas. The company has interests in 126 producing wells, owns a leasehold position covering 87,200 gross (67,000 net) acres and holds 370 Bcfe of estimated proven and unproven reserves. Range said it has identified 236 drilling locations on the Stroud leasehold, of which 182 are attributable to the Barnett Shale acreage.
Range said it plans to retain nearly all of Stroud's 27 employees. With this transaction, Range will own 42,900 gross (35,300 net) acres in the Barnett Shale play. Range plans to develop the leasehold position with a five-rig drilling program, including the three rigs Stroud is currently running, plus two additional contracted rigs scheduled to arrive in the third quarter. Range said it will consider divesting the Austin Chalk properties, which produced 16 MMcfe/d in the first quarter.
"This transaction doubles Range's leasehold position in the Barnett Shale play and our shale play team benefits from the addition of the Stroud employees, who are highly regarded," said Range CEO John Pinkerton. "We believe the expanded Barnett team will enhance and accelerate our shale effort. Excluding the Austin Chalk properties, which we will consider divesting, we estimate that the fully developed cost of the Barnett Shale and East Texas reserves will be approximately $2.35/Mcfe.
"The transaction expands our leasehold position with high-quality Barnett acreage, increases our drilling inventory and provides us with a number of additional top-tier people," he added. "Importantly, it continues Range's strategy of growing production and reserves at a 'top quartile' cost structure. Assuming the transaction closes in late June, we are increasing our 2006 production growth target from 11% to 15%."
The transaction was structured as a merger. Stroud's shareholders can exchange their Stroud shares for Range common stock or cash or both. The exchange ratio for the Stroud stock, and on which the cash consideration will be determined, will be based upon the average closing price for Range's stock for the 15 days ending five days prior to closing. Based on the latest 15-day average price of Range's stock ($27.92), and assuming all of Stroud's shareholders were to elect to receive Range common stock in the transaction, Range would issue 13.2 million shares, representing 9% of its outstanding common stock.
"We believe this transaction offers significant value to our stockholders today and for years to come," said Stroud CEO Patrick J. Noyes. "We look forward to teaming up with Range to exploit our combined resource bases. Being part of Range, which is a much larger entity, will allow for the accelerated development of our properties."
The boards of both companies have approved the merger agreement. The transaction is subject to the approval of Stroud stockholders and is expected to close in June 2006.
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