Noble’s acreage in the Delaware Basin will nearly triple to more than 120,000 net acres
It seems to be raining M&As in 2017 after the recently concluded deal in which British American Tobacco PLC agreed to acquire North Carolina-based Reynolds American Inc. (NYSE: RAI) for $49.4 billion. Several M&As, which were held back due to the uncertainty related to the US Presidential election and the possible change of economic policies by the new government, are now bagging headlines, signaling a consolidation wave sweeping across several industries. Houston, Texas-based oil producer Noble Energy Inc. (NYSE: NBL) announced on January 16th, 2017, that it would acquire Midland, Texas-based oil producer Clayton Williams Energy Inc. (NYSE: CWEI) for about $2.7 billion in a cash-and-stock deal to step up its presence in the Permian Basin, the top US oil field.
The deal underscores a major opportunity for Noble in tapping the Delaware Basin as a long-term value and growth driver. Subsequent to the deal, Noble’s acreage in the Delaware Basin will nearly triple to more than 120,000 net acres, with 4,200 possible drilling locations and estimated resources of 2 billion barrels of oil equivalent. As part of the transaction, Noble is also acquiring another 100,000 net acres elsewhere in the surrounding Permian Basin. Noble Energy said the deal includes 71,000 net acres in the core of the Southern Delaware Basin in Reeves and Ward counties in Texas, which are a part of the larger Permian Basin. In recent months, the Permian basin has witnessed many land acquisitions, as producers scramble to gain or expand positions in the oil field, where drilling costs are low, to make the most of recovering oil prices.
The Noble-Clayton merger would create the second-largest acreage position in the Southern Delaware Basin of the Permian shale formation. Noble now holds over 2 billion barrels of resource potential in the D-J and Delaware Basins, two of the most economic oil plays in North America.
With crude trading at a sustainable level of $50 to $60 per barrel, Noble believes that it can fund the operations with its cash flow. In addition to the productivity of the properties, Noble’s distribution assets in the area will help keep costs low. Crude prices rallied last year thanks to OPEC-led talks to ease a global supply glut, and have traded mostly above $50 a barrel since a final accord was reached to cut production to 32.5 million barrels per day (bpd) from the current levels of around 33.24 million bpd at the end of November 2016.
Details of the deal
Under the terms of the deal, shareholders of Clayton Williams would receive 2.7874 shares of Noble’s common stock and $34.75 in cash for each share of common stock held totaling 55 million shares and $665 million in cash. The value of the transaction, based on Noble Energy’s closing stock price as of January 13th, 2017, is about $139 per Clayton Williams Energy share, or $3.2 billion in aggregate, including the assumption of about $500 million in net debt. The per share consideration represents a 21% premium to the average closing share price of Clayton Williams over the past 30 days, and a 34% premium to the price on January 13th, 2017, the last day of trading prior to the transaction.
Noble Energy said it would fund the cash portion of the acquisition through a draw on its revolving credit facility, which stood untouched at $4 billion at the end of 2016, and expects to raise above $1 billion in 2017 through ongoing portfolio management and optimization. The deal will provide Noble with about $75 million in annual cost savings.
Noble will likely sell other assets to help fund development in the Permian and retire debt that it is taking on from Clayton Williams. Projects in the eastern Mediterranean Sea and the Marcellus shale gas play in the US seem likely targets, along with 100,000 non-core acres that the Company is picking up from Clayton. Noble Energy said its total capital budget for 2017 is now estimated at $2.1 billion to $2.5 billion and sees sales volumes between 410,000 and 420,000 barrels of oil equivalent per day (boepd).
Petrie Partners Securities LLC acted as financial adviser to Noble Energy, while Skadden, Arps, Slate, Meagher & Flom LLP was the company’s legal adviser. Evercore and Goldman, Sachs & Co were financial advisers to Clayton Williams Energy, and Latham & Watkins LLP acted as its legal adviser. The deal is expected to close in the second quarter of 2017.
Noble’s oil and gas production gets boost from acquisition
As part of its long-term plans, Noble believes it could boost oil and gas production from the acquired assets from the current 10,000 barrels of oil equivalent to 60,000 barrels a day in 2020. It plans to add two rigs in the Southern Delaware Basin in 2017, bringing the number of active rigs there to six by the end of 2017. Noble also stated that the number of rigs on the new acreage is planned to accelerate to three by the end of this year, from one currently.
Noble Energy’s stock stood at $39.79, falling 0.65%, at the close on Wednesday, January 18th, 2017, having vacillated between an intraday high of $40.54 and a low of $39.40 during the session. The stock’s trading volume was at 6,414,748 for the day. The Company’s market cap was at $17.00 billion as of Wednesday’s close.
Clayton’s stock stood at $146.55, gaining 0.90%, at the close on Wednesday, January 18th, 2017, having vacillated between an intraday high of $147.18 and a low of $143.78 during the session. The stock’s trading volume was at 1,437,307 for the day. The Company’s market cap was at $2.62 billion as of Wednesday’s close.