Oklahoma City, OK-based Quest Resources Corp. and independent producer Pinnacle Gas Resources Inc. said Tuesday their boards of directors have unanimously approved a stock-for-stock merger and that the companies have signed a definitive merger agreement.
The combined company will have an equity market capitalization of approximately $450 million and Pinnacle stockholders will receive Quest common stock worth approximately $207 million. Quest stockholders are expected to own about 55% of Quest following the merger and Pinnacle’s current stockholders will own the remaining 45%.
Sheridan, WY-based Pinnacle, a developer of coalbed methane (CBM), will survive as a wholly owned subsidiary of Quest. The transaction is expected to close either in the first or second quarter of 2008. Jerry D. Cash will continue to serve as chairman, president and CEO and as a director of Quest. The board of directors of Quest Resources will consist of seven directors, four designated by Quest and three chosen by Pinnacle.
“This transaction creates a geographically diversified, CBM-focused company with significant reserve potential,” said Cash. It “is consistent with Quest’s long-term strategy to acquire and develop significant unconventional resources opportunities to support the growth of our planned upstream MLP [master limited partnership] strategy” (see Daily GPI, Dec. 27, 2006), he noted.
“The merger combines dominant acreage and operating positions in two prolific low-risk resource plays with [more than] one million acres under lease that will allow considerable growth in production, reserves and pipeline development,” said Pinnacle President Peter G. Schoonmaker.
Quest Resources is the largest producer of natural gas in the Cherokee Basin, which is located in southeast Kansas and northeast Oklahoma. The company operates more than 1,800 producing wells, with production flowing into its 1,800-plus mile gathering pipeline system. Quest said it currently has more than 1,700 locations in its drilling inventory.
Pinnacle focuses on the development of CBM properties in the Rocky Mountain region. It holds CBM acreage in the Powder River Basin in northeastern Wyoming and southern Montana, as well as in the Green River Basin in southern Wyoming. Pinnacle owned natural gas and oil leasehold interests in approximately 478,000 gross (332,000 net) acres, 94% of which were undeveloped, as of mid-year 2007. The producer had estimated net proved reserves of 25.9 Bcf as of February of this year.
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