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Halcón buys Texas peer GeoResources

by Claire Poole | Published April 25, 2012 at 11:45 AM

Houston oil and gas explorer Halcón Resources Corp., led by former Petrohawk Energy Corp. CEO Floyd Wilson, on Wednesday, April 25, agreed to buy crosstown player GeoResources Inc. for about $1 billion in cash and stock.

Halcón is offering GeoResources stockholders $20 in cash and 1.932 shares of Halcón stock for each of their shares, or $37.97 per share, a 23% premium over GeoResources' closing price Tuesday. GeoResources shareholders are expected to own 18% of the combined company after the merger closes, which is expected in the third quarter.

In midmorning trade GeoResources shares were up 18.9% to $36.60.

Wilson is a known dealmaker in oil and gas circles. He sold Petrohawk to BHP Billiton Ltd. last summer for $15 billion, which represented a 65% premium, and then turned around in December and led the $550 million recapitalization of explorer RAM Energy Resources Inc. with Halcón controlling 74% of its stock. Lately he's been thought to be amassing leases in the Tuscalousa Marine Shale, which is being called the Louisiana "Eagle Ford" because of its prolific prospects. Global Hunter Securities analyst Philip McPherson said Halcón, which means hawk in Spanish, is "not letting any grass grow under its talons," adding GeoResources' Bakken and northeastern Eagle Ford properties to its growing list of target areas. Since revealing its strategy in February, Halcón has expanded its acreage in the Woodbine area of central Texas from 100,000 to 150,000 to 200,000 and, the analyst said, the GeoResources merger delivers 200,000 acres in the Austin Chalk trend, part of which overlaps with Woodbine.

"We believe [GeoResources] CEO Frank Lodzinski and his entire team have done a tremendous job for shareholders over the years," he wrote, noting the firm initiated coverage of the company four years ago when the stock was around $7 per share. "Given Floyd Wilson's track record of acquiring companies and generating substantial shareholder value, we believe the team at Halcón is a good fit for these assets."

The deal could boost interest in other Woodbine players, including Crimson Exploration Inc. and ZaZa Energy Corp. McPherson also noted that Halcón's non-compete with BHP will likely trigger divestments in the Permian Basin and South Texas.

Wilson, who will continue to run Halcón with CFO Mark Mize, hailed the companies' combined strengths. "The combination will create a resource powerhouse with exposure to some of the most prolific unconventional liquids plays in the United States," he said in a statement. The deal will be immediately accretive to Halcón's discretionary cash flow, production and reserves on a per share basis, Wilson said, boosting estimated proved reserves by 150% to 52.8 million barrels of oil equivalent (69% of which is liquids) and average net daily production by 170% to 11,070 barrels of oil equivalent based on fourth quarter 2011 production rates. GeoResources also has properties along the Gulf Coast and the in Williston Basin.

GeoResources's Lodzinski said in a statement that he has watched Floyd and his team create value for their shareholders over the years through their focused strategy, technical capabilities and efficient operations. "This transaction provides our shareholders with a combination of near-term liquidity and significant exposure to future upside," he said.

Halcón expects the transaction to qualify as a tax-deferred reorganization under Section 368(a) of the Internal Revenue Code to the extent of the stock portion of the consideration received by GeoResources stockholders.

Both companies' boards have cleared the deal, which requires approval from both companies' stockholders and regulators.

Barclays Capital's Greg Pipkin, Brad Hutchinson and Will Byers, Mitchell Energy Advisors LLC's Michael Mitchell and Mike Taylor and Thompson Knight LLP's William Heller advised Halcón. Stephen Gallagher and Jay Chernosky at Wells Fargo Securities and Reid Godbolt at Jones & Keller PC assisted GeoResources.

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