Independent Tom Brown Inc. is stocking up on natural gas reserves after agreeing to merge with privately held Matador Petroleum Corp. on Wednesday. The transaction will increase the Denver-based independent’s reserves by 37% to 1 Tcfe.
Matador, a privately held exploration and production company, is active primarily in the East Texas Basin and the Permian Basin of southeastern New Mexico and West Texas. It produced 61 MMcfe/d in the first quarter and holds proved reserves estimated to be 36% undeveloped, with 86% natural gas. The reserve life is 12 years. Additionally, Matador holds about 56,000 net developed ares and 111,000 net undeveloped acres.
Tom Brown said the merger would be accretive to earnings and cash flow this year. The agreement already has been approved by both of the companies’ boards, and the deal is expected to close before the end of June.
“We have been very successful in East Texas over the last several years and the application of our proven reservoir characterization and exploitation expertise will enhance the future potential of these properties,” said James Lightner, Tom Brown’s CEO. He added that the transaction would give the company “increased exposure to high potential reservoirs and superior gas prices.”
Under the terms of the definitive merger agreement, Matador shareholders will receive $17.53 per share and Tom Brown will assume $105 million of net debt. The transaction is subject to approval by the holders of two-thirds of Matador’s outstanding stock and other customary conditions. In connection with the execution of the merger agreement, Matador shareholders, who own 43% of Matador’s outstanding shares, have agreed to vote in favor of the transaction.
Tom Brown said it would fund the acquisition initially with bank debt , but it also is evaluating other alternatives, including issuing equity as well as debt placement in private markets.
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