Observers have long said that the oil and gas industry needs to consolidate, given the number of players and investors’ push for companies to generate free-cash flow and higher dividends and stock buybacks.
This week they got their wish, at least in the oil and gas exploration and production segment, with three different $1 billion-plus deals being announced. Speakers at Deloitte’s oil and gas industry conference in Houston last week said to expect more.
According to the firm’s annual survey, which was released at the conference, 41 percent of oil and gas executives see oilfield services as having the highest consolidation potential. Meanwhile, 29 percent of executives in the related chemicals sector see the most consolidation coming from their part of the world.
“The industry is still very fragmented,” Deloitte oil and gas and chemicals partner John England said on the sidelines of the conference. “There will be consolidation.”
On a conference panel, Citi banker Steve Trauber and Kirkland & Ellis partner Andy Calder agreed that there was a need for more consolidation. Trauber said that oilfield services companies are under pressure to perform while Calder noted that hedge funds are pressuring smaller oil and gas producers operating in the same basin to combine so as to maximize profits.
“The current mantra is return capital or consolidate,” Calder said.
Private equity will play a big part in the dealmaking, Calder added. “There is so much private money out there,” he said. “And there are 200 or 300 funds looking to get into the oil and gas space.’
Raymond James analysts weighed in on the topic in a report out this past week. They said that many oil and gas explorers and producers have been taking steps to improve their free cash flow profiles and returns metrics over the next few years, which they could achieve in part through operational synergies that M&A transactions offer. They note initial synergy estimates in the Concho-RSP and Diamondback-Energen combinations each exceed $2 billion.
“While investors often view synergy benefits as ‘pie in the sky,’ we expect these deals to generate real value uplift,” they said, noting improvements in capital efficiency, scale, acreage position and corporate overhead.
The analysts believe Centennial Resource Development, Jagged Peak Energy, Laredo Petroleum, Matador Resources and Parsley Energy all could look like potential targets based on earnings estimates, their acreage positions relative to larger operators, their valuation and/or their access to sufficient capacity out of the basin.
Tudor, Pickering, Holt also thinks Laredo could be taken out as well as Carrizo Oil & Gas, QEP Resources and Oasis Petroleum.
In keeping with the trends, work among Texas lawyers inched upward last week, with 16 deals worth $17.3 billion, versus 14 deals worth $14.4 billion the previous week. The work involved 13 law firms and 183 Texas lawyers versus 18 law firms and 134 Texas lawyers the previous week.
There were 14 M&A and private equity transactions worth $16.361 billion for the week versus two capital markets transactions valued at $950 million. There was even a bankruptcy of a good-sized oil and gas explorer, showing that the industry is still “working through its recovery from the downturn,” as Deloitte said in its survey materials.
M&A AND PRIVATE EQUITY INVESTMENTS
Kirkland advises Newfield on $7.7B sale to Encana
As The Texas Lawbook reported Nov. 1, Canada’s Encana Corp. agreed to buy The Woodlands-based Newfield Exploration Co. for $7.7 billion, expanding its property base into new areas.
The deal includes $5.5 billion in stock and $2.2 billion in debt assumption.
Newfield stockholders will get 2.6719 shares of Encana for each of their shares worth $27.36 per share, a 35.4 percent premium. Encana shareholders will end up with about 63.5 percent of the combination while Newfield stockholders will hold around 36.5 percent and two Newfield directors will join the Encana board.
Kirkland & Ellis advised Newfield along with Wachtell, Lipton, Rosen & Katz.
The Kirkland team was led by Houston corporate partner Sean T. Wheeler, who joined the firm in July from Latham & Watkins.
Others leading the transaction were partners Doug Bacon, Anthony Speier and Rahul Vashi, also of Houston; partners Ryan Gorsche and Benjamin Adelson in Dallas, where Kirkland opened an office in July (both came from Weil Gotshal & Manges); and associates Camille Walker, Jennifer Singh and Lindsey Jaquillard, all of Houston.
Specialists included tax partners David Wheat, who offices out of Houston and Dallas, and environmental transactions partner Paul Tanaka in Houston. The team had assistance from lawyers in the firm’s Chicago and New York offices on tax, executive compensation and employee benefits matters.
Newfield’s in-house counsel on the deal were assistant general counsel Ben Paul, who previously worked with Kirkland’s Wheeler on deals at Latham and Baker Botts; and assistant general counsel Meghan Eilers, who previously was in the legal department of Noble Energy for 10-plus years and was an attorney at Croft & Associates.
Newfield doesn’t have a general counsel currently. Its previous general counsel, Tim Yang, left the company in September to join Magnolia Oil & Gas as its top legal officer.
Paul, Weiss, Rifkind, Wharton & Garrison and Blake, Cassels & Graydon counseled Encana, which used Credit Suisse and TD Securities as financial advisors.
J.P. Morgan Securities provided a fairness opinion to Newfield’s board and J.P. Morgan and Goldman Sachs & Co. were its financial advisors. Scotiabank was Newfield’s technical advisor.
The parties expect to close the transaction in the first quarter if it clears both companies’ stockholders and Hart-Scott-Rodino.
Three Texas firms aid on Chesapeake’s $4B WildHorse acquisition
Also covered last week by The Lawbook, Oklahoma City-based Chesapeake Energy Corp. agreed to buy WildHorse Resource Development of Houston for nearly $4 billion in cash, stock and debt.
Three law firms with offices in Texas represented parties on the deal.
Wachtell, Lipton, Rosen and Katz and Baker Botts advised Chesapeake. The Baker Botts team included partners Clint Rancher and Joshua Davidson and associates Jamie Yarbrough, Stephen Noh, Josh Gonzales and Mitch Athey.
Baker Botts specialists included partners Richard Husseini and Jon Lobb on tax; partner Lyman Paden and associate Chad Davis on finance; partner Gail Stewart, senior associate Krisa Benskin and associate Gabriela Alvarez on employee benefits; partner Erin Hopkins and associates Justin Clune and Taylor Lopez on global projects; and partner Scott Janoe and associate Mark Hamlin on environmental.
Vinson & Elkins represented WildHorse, including partners Steve Gill and Doug McWilliams and associates Claire Campbell, McCall Grimes, Crosby Scofield, Sara Bloom, Andrianna Frinzi and Michael Pascual.
Gill also worked on Denbury Resources’ $1.7 billion purchase of Penn Virginia announced Monday.
WildHorse’s in-house team included general counsel Kyle Roane, who previously was general counsel at Memorial Resource Development and counsel at Akin Gump.
Roane had help from assistant general counsel Brad Coffey, who previously was division counsel at Range Resources and assistant general counsel at Memorial Resource and practiced at Beck Redden.
Latham & Watkins counseled WildHorse investor the Carlyle Group with attorneys outside of Texas.
Goldman Sachs’ Bill Lambert provided financial advice to Chesapeake. WildHorse was assisted by Tudor, Pickering, Holt’s Maynard Holt, Chad Michael and Cameron Alguire; Morgan Stanley’s John Bishop and Michael Harris; and Guggenheim Securities’ Joel Foote.
WildHorse stockholders can choose between 5.989 shares of Chesapeake stock for each of their shares or 5.336 shares of Chesapeake and $3 per share in cash.
Chesapeake shareholders will end up with 55 percent of the combination while WildHorse stockholders will hold 45 percent. WildHorse will get two seats on Chesapeake’s board.
The offer implies a valuation of $22.85 per share for WildHorse’s stock, which represents a 24 percent premium.
Chesapeake expects to close the deal in the first half of next year if it clears both companies’ shareholders. It will finance the cash portion of the transaction – expected to be between $275 million and $400 million – through its revolver.
Three firms assist on Denbury’s $1.7B Penn Virginia purchase
As The Lawbook also reported, Texas lawyers from three different firms counseled on Denbury Resources’ $1.7 billion purchase of Penn Virginia Corp.
Vinson & Elkins counseled Plano-based Denbury. Partners Steve Gill and Jeff Floyd led the team with assistance from associates Atma Kabad, Alex Robertson, David Bumgardner, Todd Hartis, Key Hemyari and Madison Guidry.
V&E specialists included partners Lina Dimachkieh on tax, Guy Gribov on finance, David D’Alessandro on executive compensation/benefits, Bryan Loocke on oil and gas, Sean Becker on labor/employment and Larry Nettles on environmental.
Skadden, Arps, Slate, Meagher & Flom and Gibson, Dunn & Crutcher assisted Houston-based Penn Virginia.
Skadden’s team included M&A partner Frank Bayouth and corporate associate Christopher Baeza in Houston.
Gibson Dunn’s team was led by Houston partner Hillary Holmes and included partners Tull Florey, Justin Stolte, Shalla Prichard and James Chenoweth and associates Harrison Tucker, Eric Haitz, Whitney Bosworth, James Robertson and Dave Cias.
Guggenheim Securities advised Denbury on the deal while J.P. Morgan Securities provided it with financial advice related to the capital structure and financial aspects of the transaction.
Denbury’s general counsel is Jim Matthews, who previously practiced at Vinson & Elkins and ran the Tokyo office. Penn Virginia’s chief legal counsel is Katie Ryan, who previously was an associate at Baker Botts (where Gibson Dunn’s Holmes practiced for almost 14 years).
Penn Virginia shareholders will get 12.4 of a share of Denbury stock and $25.86 in cash for each of their shares worth $79.80, an 18 percent premium over the target’s closing price on Friday.
The parties expect to close the transaction in the first quarter with Denbury financing the deal with debt and cash on hand.
JPMorgan Chase Bank committed to a new $1.2 billion senior secured bank credit facility, which replaces Denbury’s untapped revolver, and a $400 million senior secured second lien bridge financing.
Denbury said it could use a new $1.2 billion revolver and a $400 million senior secured second lien bridge from JPMorgan Chase Bank to pay the cash portion of the deal. It also could potentially retire and replace Penn Virginia’s $200 million second term loan and its bank credit facility, which had $283 million drawn and outstanding as of Sept. 30.
Gibson Dunn aids Intrepid on Vitol, IFM buying VTTI stake from Buckeye
Gibson, Dunn & Crutcher said it represented Intrepid in its role advising the board of Buckeye GP, the general partner of Buckeye Partners, on its sale of its 50 percent stake in VTTI to Vitol Investment Partnership II and IFM Investors for $975 million.
Buckeye Partners also sold non-integrated U.S. pipeline and terminal assets to an unnamed party for $450 million. They included a jet fuel pipeline from Port Everglades, Fla., to the Ft. Lauderdale and Miami airports; pipelines and terminal facilities serving the Reno, Nev., San Diego, Calif., and Memphis, Tenn., airports; and refined petroleum products terminals in Sacramento and Stockton, Calif.
Vinson & Elkins advised Vitol with lawyers outside of Texas. White & Case represented IFM, also with out-of-state attorneys.
Buckeye Partners said the sales were the result of its strategic review process to maintain its investment grade credit rating by reducing leverage and provide increased financial flexibility; eliminate the need for it to access the public equity markets to fund annual growth capital; and reallocate capital to the higher return growth opportunities across its remaining assets.
Buckeye Partners also said it reduced its quarterly cash distribution to 75 cents per unit or $3 per unit per year.
The sale of Buckeye’s VTTI equity interest and the asset sale are expected to close by year end if they clear regulators.
Buckeye chairman, CEO and president Clark C. Smith said in a statement that he’s confident that the actions will not only strengthen the balance sheet and solidify its investment grade rating but also meaningfully improve distribution coverage.
He said that the sales of its interest in VTTI and the U.S. assets allow Buckeye to reallocate available growth capital to higher return initiatives across our U.S. assets, particularly the opportunities it’s actively pursuing along the U.S. Gulf Coast.
On the deal’s completion, VTTI will be half owned by IFM and half by Vitol. It will continue to be managed by an independent management team led by Rob Nijst.
V&E, Sidley, Akin aid on I Squared’s $500M commitment to Pinnacle
Vinson & Elkins said Friday that it advised Midland-based EagleClaw Midstream and Blackstone Energy Partners on I Squared Capital’s $500 million commitment and contribution of Pinnacle Midstream to become a partner in EagleClaw’s parent BCP Raptor Holdco.
The team members from Texas were partner Keith Fullenweider, senior associate Benji Barron and associate Robert Hughes with assistance from partner Peter Marshall and associates Kathryn Hastings, Maggie Webber, Danny Wicoff, Daniel Hatch
and Erin Mitchell.
Also advising were partner John Lynch and associates Brian Russell and Neil Clausen on tax; senior associate Matt Dobbins and associate Jennifer Cornejo (environmental); partner Shane Tucker and senior associate Dario Mendoza (executive compensation/benefits); partner Tom Wilson, counsel Grace Ho and associate Robert Sheppard (labor/employment); counsel Prentiss Cutshaw and Scot Dixon (real estate); and counsel Sarah Mitchell (litigation).
Sidley Austin represented I Squared, a global infrastructure investment firm manager with offices in Hong Kong, Houston and London, among other places. That team included partners Glenn Pinkerton,Tim Chandler and David Buck and associates Atman Shukla and Kayleigh McNelis.
They were joined by partners William Morris, Robert Shearer, Andrew Lehman and Shar Ahmed; counsel Stephen Boone and Mary Lovely and associates Jack Polisini and Matthew Turner; tax partner Alison Chen; energy regulation, markets and enforcement senior counsel Vera Neinast; and labor and employment partner Brian Patterson.
Jefferies provided financial advice to Blackstone and EagleClaw. Goldman Sachs and Greenhill assisted I Squared.
Proceeds from I Squared’s investment, along with contributions from Blackstone and EagleClaw’s management team, are being used to fund EagleClaw’s continued growth, including the expansion of EagleClaw’s system; the acquisition of Caprock Midstream, which closed; and the ongoing construction of the $2 billion Permian Highway Pipeline, a 50-50 joint venture with Kinder Morgan.
Led by CEO Bob Milam, EagleClaw operates nearly 1,000 miles of natural gas, natural gas liquids, crude and water gathering pipelines; 1.4 billion cubic feet per day of processing capacity, including one plant under construction; and crude and water storage and disposal facilities.
The company has nearly half a million acres in the core of the southern Delaware Basin under long-term dedication for midstream services.
Pinnacle operates 100 miles of natural gas and crude gathering pipeline, 30,000 barrels of crude storage facilities and a 60 million cubic feet per day natural gas processing facility, all near EagleClaw’s assets.
David Foley led the deal from Blackstone Energy Partners while Adil Rahmathulla did so from I Squared Capital.
Halcón sells Delaware water infrastructure assets for $325M
Halcón Resources Corp. said Oct. 31 it agreed to sell all of its water infrastructure assets across the Delaware Basin to an unnamed private company for up to $325 million in cash.
Halcón chief legal officer David Elkouri said he worked on the deal along with associate general counsel Kason Kerr. Bracewell was its outside counsel, with lead partner Cle Dade and associate Lytch Gutman. The seller used Porter Hedges partner Benjamin Rajabi.
Scotiabank and BMO Capital Markets are advising Halcón on the divestiture.
The price included $200 million in cash and $125 million payable on a deferred basis over a five-year period based on meeting certain annual incentive thresholds.
The parties expect to close the transaction by year-end. The assets include water gathering lines, saltwater disposal wells, freshwater wells and water recycling facilities.
There are no drilling or throughput commitments associated with the transaction and none of Halcón’s oil and gas infrastructure assets are included in the sale.
These assets include 40 miles of gas gathering pipelines, 30 miles of oil gathering pipelines and 7,000 horsepower of compression and gas treating infrastructure and facilities.
Halcón chairman and CEO Floyd C. Wilson said the transaction bolsters its liquidity and improves its leverage profile and the $200 million cash payment represents a significant premium to how the market currently values Halcón.
“It also reduces operating risk by transferring our future water handling needs to a reputable water-focused midstream operator while retaining our less mature oil and gas infrastructure assets for future upside appreciation,” he said.
Seaport Global Securities analyst Mike Kelly said Halcón received a “great price” for the water assets but the market is going to want to know what’s next, which could include the partial sale of its Pecos exploration and production assets for an estimated $450 million and the eventual sale of its remaining oil and gas infrastructure assets, which could fetch $200 million to $300 million.
“The balance sheet isn’t fully cleaned up yet,” he said. “That combination would completely wipe Halcón clean of its debt and we think the pro forma Ward County-focused company would garner significant investor interest.”
Kirkland aids Canadian Non-Operated on sale of Pipeline Oil to Blackbird
Blackbird Energy Inc. and Pipestone Oil Corp. announced plans Oct. 30 to merge with $111 million in equity financing and $198.5 million in debt financing to fund drilling and other capital expenditures.
The parties said the combination, which will be called Pipestone Energy Corp., will create a premier high growth, pure-play, condensate-rich oil and gas company operating in the Montney Shale.
At closing, Pipestone Oil’s owner, Canadian Non-Operated Resources, will be entitled to receive 103.75 million common shares of Pipestone Energy. Blackbird shareholders will own 45.1 percent of the company’s new shares outstanding or 50.8 percent on a fully diluted basis, including all existing Blackbird dilutive securities.
Bennett Jones was Blackbird’s legal advisor while Osler, Hoskin & Harcourt counseled Pipestone Oil.
Financial advisors included Cormark Securities Inc. and BMO Capital Markets for Blackbird and Peters & Co. for Pipeline Oil on the transaction.
National Bank Financial was Pipestone Oil’s strategic advisor and lead arranger and sole bookrunner with respect to the credit facility. CIBC World Markets was strategic advisor to Canadian Non-Operated’s board.
The financings are expected to fully fund Pipestone’s planned 2019 restricted exit production rate of 14,000 to 16,000 barrels of oil equivalent per day with diversified processing and egress solutions already in place.
Blackbird chairman, CEO and president Garth Braun said in a statement that the transaction was a transformative opportunity that further de-risks the company’s path to unlock the potential of its Pipestone Montney resource and will add to earnings.
“The combination of these two companies creates scale, diversified access to processing and a combined potential value that will be greater than the sum of the parts,” he said.
Paul Wanklyn, president and CEO of Pipestone Oil, will lead Pipestone Energy along with COO Bob Rosine. Rick Grafton, co-founder of Grafton Asset Management, which runs Canadian Non-Operated, will serve as strategic advisor to the board.
Board members will include Wanklyn, Braun and Bill Lancaster, president of GMT Exploration Co.; Geeta Sankappanavar, co-founder and president of Grafton Asset Management; Robert Tichio, a partner at Riverstone Holdings; and two additional independent nominees, one of whom will serve as the chair.
NRF aids on NuStar’s $270M European ops sales to Inter Pipeline
San Antonio-based NuStar Energy announced that it agreed to sell its European terminals and related assets to Inter Terminals Ltd., a unit of Inter Pipeline Ltd., for $270 million.
The operations include six liquids storage terminals in the U.S. and one facility in Amsterdam.
NuStar expects the acquisition to close in the fourth quarter.
NuStar, whose general counsel Karen Thompson, used Norton Rose Fulbright for outside counsel. The team was led by a partner in London but San Antonio partner Daryl Lansdale was involved and oversaw any U.S. elements on the deal.
Wells Fargo provided financial advice to NuStar, including Russell Clingman, Nick Horodinca and Rawley Vines.
NuStar said the divestiture is part of its plan to lower debt and deliver strong, sustainable distribution coverage.
NuStar CEO and president Brad Barron said the assets are high-quality but aren’t synergistic with its other operations.
Inter Terminals currently has 16 terminals throughout Europe, including six in the U.K.
Pioneer Natural Resources Sells South Texas Acreage for $132 Million
Irving-based oil and gas driller Pioneer Natural Resources sold 2,900 acres in South Texas’ Eagle Ford for $132 million as part of its plan to focus on West Texas’ Permian Basin.
Pioneer general counsel Mark Kleinman said Vinson & Elkins partners David Cohen and John Grand were lead outside counsel with a “team effort” in-house. V&E senior associate Elena Sauber and associate Danny Nappier also worked on the deal.
The acreage is in the Sinor Nest (Lower Wilcox) field in Live Oak County and produced 3,100 barrels of oil equivalent a day.
The acreage is located in the Sinor Nest or Lower Wilcox field and represents all of Pioneer’s interests in the field.
Nicor expects the transaction to close in the fourth quarter.
Gibson Dunn represents CenterOak on GNAP acquisition
Gibson Dunn & Crutcher said it represented Dallas private equity firm CenterOak Partners on its acquisition of GNAP for an undisclosed sum.
The Gibson Dunn team includes corporate partners Robert Little and Jonathan Whalen, corporate associate Joseph Orien, tax partner David Sinak and tax associate Michael Cannon, finance associate Whitney Bosworth and benefits associate Krista Hanvey, all of Dallas.
Katten Muchin Rosenman represented GNAP with attorneys out of Chicago.
The deal was a majority recapitalization of GNAP, a top specialty distributor of industrial abrasive products, equipment, specialty ceramics and ancillary services.
CEO Michael Currie and the existing management team will continue to lead Grand Rapids, Mich.-based GNAP.
GNAP was formed through the 2005 merger of Grand Northern Products and Abrasive Products.Currie joined the business in 1997. Since 2005, the company has completed six acquisitions and internally developed GNP Ceramics, GNAP’s rapidly growing specialty ceramics division.
Randall Fojtasek is managing partner of CenterOak, whose senior leaders and their predecessor funds have managed $1.8 billion of equity capital commitments and completed 100 acquisitions representing $3.3 billion in transaction value.
Jones Day advises BenefitMall on its Planet Payroll purchase
Jones Day announced that it advised the Carlyle Group-backed BenefitMall on its acquisition of Planet Payroll in Phoenix for an undisclosed sum.
Planet was represented by Milligan Lawless in Phoenix.
Dallas-based BenefitMall provides employee benefits and payroll services through a network of 20,000 brokers and certified public accountants to more than 200,000 small and medium-sized businesses. It operates HealthCareExchange.com, the top online community for information regarding the Patient Protection and Affordable Care Act.
Planet Payroll is a payroll service bureau with clients in Arizona, New Mexico and Texas.
BenefitMall will integrate Planet Payroll’s office into its own, bringing on its employees.
Crossplane Capital launches with former Prophet Equity execs
Former executives of Prophet Equity launched Dallas private equity firm Crossplane Capital, which plans to seek control investments in niche manufacturing, distribution and industrial business services providers with up to $200 million in revenue.
Jim Deeken, a partner at Akin Gump Strauss Hauer & Feld in Dallas, counseled Crossplane on the launch.
Prophet was founded by partners Brian Hegi and Ben Eakes and joined by operating partner Ingrid West and managing director Mike Sullivan. Members of the team have worked for Prophet as well as AlixPartners, Bain & Co. and Houlihan Lokey, led Danaher and Acton Mobile and been involved in more than 75 transactions.
Baker Hughes buys Shell-backed XACT Downhole Telemetry
Shell Technology Ventures- and BP Ventures-backed XACT Downhole Telemetry Inc. has been acquired by Baker Hughes, a GE company.
Lee Whitley worked on it from Baker Hughes, which used Dentons in Calgary for outside legal advice.
Shell’s legal counsel couldn’t be ascertained by press time. Kristen Golden is a corporate attorney for Shell’s New Energies business supporting New Fuels, Shell Technology Ventures, Solar and Connected Energy businesses.
Piper Jaffray unit Simmons & Co. International advised XACT.
Led by Jason Roe, XACT claims to provide the industry’s only commercial downhole acoustic telemetry platform capable of operating in well construction and completion environments.
Its technology operates in previously unavailable applications and provides downhole well construction, completion and intervention data in real-time with memory backup, helping managers make better decisions that improve safety, well integrity, efficiency, productivity and overall well economics.
Winston advises Park Energy on acquisition of Midcon Compression
Rock Hill Capital-backed Park Energy Services said Oct. 31 it acquired almost all the assets of Midcon Compression from Chesapeake Energy for an undisclosed sum.
Debt financing was provided by Regions Bank and BMO Harris Bank provided debt financing for the deal.
The transaction includes a facility in Hinton, Okla., and a fleet of natural gas compressors used primarily in artificial lift, wellhead compression and gathering applications. Midcon personnel will be joining the Park team.
The acquisition increases Park’s compression to150,000 horsepower and expands it strategic position in the Mid-continent and South Texas regions. In connection with the transaction, Park entered into a multi-year agreement with Chesapeake to serve as a local compression provider.
Park CEO and president Jonathan Mitchell said the acquisition expands the company’s rental and service offering.
Park was founded in 2014 and is based in Oklahoma City.
Rock Hill was founded in 2007 and is headquartered in Houston. It invests in small-to-lower middle market companies in the South and Southeast U.S. and is investing out of its third fund, which totals $150 million.
K&E, W&C aid on Salt Creek’s $650M loan from Deutsche Bank
Salt Creek Midstream, which is backed by Ares Management and ARM Energy Holdings, said Oct. 30 it secured a four-year $650 million term loan from Deutsche Bank.
The capital will be used to develop and expand Salt Creek’s business in the Delaware Basin.
V&E advises Goldman on $300M McDermott private placement
Vinson & Elkins said Oct. 31 it advised certain investment funds managed by the merchant banking division of Goldman Sachs on its acquisition of 300,000 shares of McDErmott International’s 12 percent redeemable preferred stock.
Goldman also agreed to purchase a warrant to buy 3.75 percent of the company’s common stock at close, which is expected by Nov. 29.
Baker Botts counseled McDermott with a team led by partner Ted Paris.
Others were corporate partners James Mayor and Travis Wofford, finance partner Luke Weedon, corporate associates Leslie Daniel, Jennifer Gasser, Katie Belleville and Steven Lackey, finance associates Clint Culpepper and Josh Espinosa and tax partners Derek Green and Jon Lobb and associate Peter Farrell.
Barclays Capital Inc. was the lead placement agent.
McDermott said the proceeds from the placement will be used for general corporate purposes, including increased cash requirements for its Cameron, Freeport and Calpine projects.
McDermott CEO and president David Dickson said the company’s underlying results reflect solid operating performance, accelerated progress in identifying revenue and cost synergies and implementing a new cost culture, an improving macro environment and strong customer receptivity to its recent combination with TK, which contributed to a booking quarter and a record-setting revenue opportunity pipeline of $80.3 billion.
Dickson added that McDermott had strong contract awards so far in the fourth quarter, including a $1.69 billion deepwater project off the eastern coast of India for Oil & Natural Gas Corp. as part of a consortium with Baker Hughes and Larsen and Toubro, outbidding TechnipFMC. McDermott’s portion of the contract is $700 million.
McDermott recently completed a strategic review of its portfolio and has decided to sell its tank storage business and U.S. pipe fabrication business as they are non-core to its vertical integration. The businesses generated sales of $1.5 billion last year and it expects to sell them for more than $1 billion, which will be used to cut debt under its term loan.
Kirkland & Ellis M&A partner Doug Bacon had a part in advising Houston-based Gastar Exploration on its planned Chapter 11 bankruptcy filing, which was mostly handled by lawyers outside of Texas.
The oil and gas explorer announced Oct. 26 that it reached a restructuring support agreement with Ares Management-affiliated funds, which hold almost all of Gastar’s outstanding debt and are the largest beneficial owners of its common stock.
The agreement will allow Gastar to cut $300 million of its funded-debt obligations and preferred equity interests, cancel existing common equity interests and receive $100 million in new, committed financing for the restructuring and business operations.
The restructuring will be implemented through a pre-packaged Chapter 11 plan of reorganization and Chapter 11 cases in the Bankruptcy Court for the Southern District of Texas.
The restructuring is not expected to affect the company’s operations and it expects to emerge from bankruptcy before the end of the year.
Gastar also reached an agreement with the counterparties to its hedging and swap arrangements, which make up its largest creditor group after Ares. Gastar will make monthly installments to the group through December of next year.
The company said the restructuring was developed after marketing efforts failed to yield any viable proposals to repay or refinance the company’s indebtedness or sell the company or its assets.
“The company needs new capital to continue to operate,” it said. “Post-restructuring, the company will have a strengthened balance sheet that will facilitate capital investment in operations.”
Parties can still make a higher and better proposal through the first 30 days of the Chapter 11 case, the company said.
Opportune is Gastar’s restructuring adviser and Perella Weinberg Partners is its financial advisor.
“The restructuring agreement we signed today is a comprehensive plan that will ensure Gastar remains competitive in its industry,” interim CEO and board chair Jerry R. Schuyler said in a statement.
Gastar Exploration Inc. is a pure play Mid-continent oil and gas explorer with assets in the Stack play in Oklahoma, including the Oswego limestone, Meramec and Osagebench formations within the Mississippi Lime, the Woodford shale and Hunton limestone formations.