Dallas-based Westside Energy Corp. has agreed to combine with privately held Crusader Energy Group, Westside said last Wednesday. The combination is intended to create a growth-oriented oil and gas company with a large unconventional resource base.
Assets affected by the deal are located primarily in the Fort Worth Basin Barnett Shale, Delaware and Val Verde Basins in West Texas, Oklahoma's Anadarko Basin and Central Uplift and the Bakken Shale of the Williston Basin.
Following approval by Westside shareholders, the combined company will be renamed Crusader Energy Group Inc. and be headquartered in Oklahoma City. Robert J. Raymond will serve as chairman. David D. Le Norman will serve as the company's CEO and president. All existing members of Westside's board will resign and be replaced by Crusader nominees.
Entities affiliated with Greenhill Capital Partners, Reservoir Capital Group, RCH Energy and D.E. Shaw/Laminar, which are currently large private investors in certain of the Crusader entities, will be significant stockholders of the company after closing.
Crusader, of Oklahoma City, includes Knight Energy Group LLC; Knight Energy Group II LLC; Knight Energy Management LLC; Crusader Energy Group LLC; Crusader Management Corp.; RCH Upland Acquisition LLC; and Hawk Energy Fund I LLC.
Closing is subject to regulatory approvals and is expected during the second quarter.
The combined company will have a net proved reserve base of more than 150 Bcfe, 80% natural gas, as of Dec. 31, 2007 with an estimated reserve life of 15.8 years. At the end of 2007 combined production was greater than 26,000 Mcfe/d, 75% natural gas. The total acreage position exceeds 765,000 gross acres, or approximately 316,000 net acres, which provides for a large inventory of drilling locations and unrisked resource potential, Westside said; 92% of the gross acreage is undeveloped.
"The combination of Westside and Crusader creates a unique company with long-lived reserves and drilling opportunities in some of the most exciting basins in the U.S.," said Westside Chairman Keith D. Spickelmier.
"This transaction positions Westside and ultimately Crusader Energy as a company with tremendous future potential," said Raymond. The transaction combines a "1) large, relatively undeveloped asset base centered on unconventional resource plays with the potential for significant additional scale, 2) technically focused management team with a history of operational success and value creation in the upstream sector of the oil and gas business, and 3) competitive cost of capital coupled with high financial return projects and the ability to largely fund future development without the need for additional equity and associated dilution."
The company said a strong balance sheet will allow for funding of capital expenditures from operating cash flow and debt without the need for further equity issuance absent significant acquisitions. The 2008 capital expenditure budget is preliminarily estimated to be more than $180 million, funded through cash flow and additional borrowings.
Westside, in exchange for acquiring all the ownership interests in Crusader, will issue approximately 152.4 million shares of its common stock to the Crusader holding companies, subject to an increase of up to 19.3 million shares to reflect potential additional cash contributions into Crusader of up to $58 million prior to closing (such increase to occur on the basis of one share for each $3 contributed), and will issue options to purchase an additional 35 million shares of its common stock at an exercise price of $3/share to the Crusader management team.
As of the closing, should all 19.3 million additional shares be issued, Westside will have approximately 198.1 million shares of common stock outstanding. In addition, the existing $68 million of Crusader debt will remain in place or be refinanced in connection with the transaction. As of Dec. 31, 2007, Westside had approximately $29 million in debt.
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