By Claire Poole
(Aug. 27) – Consolidation continues in the oil and gas industry, but this time it isn’t in the Permian Basin of Texas and New Mexico; It’s a merger in Ohio’s Utica Shale involving Eclipse Resources Corp. and Blue Ridge Mountain Resources, creating one of the largest operators focused on the area.
The all-stock transaction, announced Monday, implies an enterprise value for the combination of $1.4 billion and an equity value of $908 million.
Texas lawyers from three different firms helped push the deal through.
Firm specialists included partner Stephen Jacobson and associate Steven Oyler on executive compensation/benefits and partner John Lynch on tax.
Norton Rose Fulbright US was legal advisor for Eclipse. The Dallas-based team was led by partner Bryn Sappington and included partner Paul Conneely, senior associate Brandon Byrne and associates Madison Keeble and Evan Hardee.
Partner Alexander Clark helped out on benefits and partner Bill Bowers helped on tax.
The associates were Jonathan L. Seliger, Kathy Witty Medford, Jay N. Larry, Shannon M. Rice, John L. Stavinoha III and Hobie Temple.
The in-house legal team at Irving-based Blue Ridge included general counsel Paul M. Johnston and corporate counsel Frank E. Day.
Johnston, who is staying in his post, joined Blue Ridge in 2010 after working as general counsel of Links Business Capital, corporate counsel at Centex Corp. and a partner at Thompson & Knight. He’s a graduate of Texas Tech University School of Law.
Jefferies was Eclipse’s financial advisor (Guy Oliphint in Houston) while Barclays advised Blue Ridge (Robert Edgell in New York and Zach Jordan in Houston).
Analysts at Seaport Global Securities said the merger solves a lot of issues for State College, Pa.-based Eclipse, including improving leverage, accelerating organic growth, cutting unit costs and adding higher quality acreage. “We like the price tag as well,” they said, noting it came at $345 million, or around $1,100 per acre.
Eclipse was thought to be a takeover target last year, especially after EQT’s surprise announcement that it was acquiring Rice Energy for $6.7 billion.
Blue Ridge previously was known as Magnum Hunter Resources Corp. but rebranded early last year.
Shareholders of Irving-based Blue Ridge will receive 4.4259 of a share of Eclipse stock for each Blue Ridge share they own before adjusting for a 15-to-1 reverse stock split of Eclipse that will happen at closing.
Both companies’ boards and a majority of Eclipse shareholders have already approved the deal, which still requires clearance from a majority of the holders of Blue Ridge’s stock. The transaction is expected to close in the fourth quarter.
The parties expect the combination will produce 500 to 560 million cubic feet equivalent per day of natural gas in the fourth quarter. The two also will have 227,000 undeveloped core acres providing 20 years of wet and dry gas inventory.
The companies expect $15 million in annual corporate general and administrative savings across their combined asset base along with benefits on the midstream and downstream side of the business.
They anticipate the merged company will have a leverage ratio of 2.1 times based on debt-to-EBITDAX in the second quarter with line of sight to 1.5 to 1.7 times EBITDAX by the fourth quarter.
The combination is expected to have $312 million in near-term liquidity, including an estimated $150 million increase in the borrowing base under its revolver at closing and no near-term debt maturities.
The resulting company plans to self-fund a two- to three-rig business plan targeting annual production growth of more than 20 percent and become cash flow generating in 2020. It also plans to make acquisitions to add scale and cash flow.
Blue Ridge CEO John Reinhart will head up the combination, which he said will have a scale advantage and a foundation for organic growth with attractive cash flows and opportunities for bolt-on, value-accretive acquisitions within the basin.
Eclipse chairman, CEO and president Benjamin W. Hulburt said the transaction provides a compelling opportunity for Eclipse and Blue Ridge to benefit from the strength of the combined company.
Eclipse shareholders will end up with 57.5 percent of the outstanding shares of the combined company and Blue Ridge shareholders will hold 42.5 percent. The two companies will each have five directors on the board, including Reinhart.
Eclipse CFO Matthew DeNezza will be interim CFO through Nov. 30 or until a permanent CFO is announced. Eclipse COO Oleg Tolmachev will continue in his role as will Blue Ridge resource planning and development chief Matthew Rucker.