Chord (CHRD) to Solidify Its Position in the Williston Basin
Chord Energy Corporation (CHRD), a U.S. oil and gas producer, signed an agreement to acquire Calgary-based Enerplus Corporation (ERF) in a stock-and-cash transaction. The combined entity — with an enterprise value of approximately $11 billion — will acquire a premier position in the Williston basin. This basin has approximately 1.3 million net acres in area and registered a production of 287,000 barrels of oil equivalent per day in the fourth quarter of 2023. After the merger, the new company will be able to generate enhanced cash flows to support increased shareholder returns.
Details of the Deal
Per the terms of the agreement, Enerplus shareholders will receive 0.10125 shares of Chord Energy common stock and $1.84 per share in cash, representing 90% stock and 10% cash consideration in exchange for every Enerplus share owned at closing as of Feb 20, 2024. Chord Energy will also issue approximately 20.7 million shares of common stock as stock consideration to Enerplus shareholders as part of the transaction. Post completion of the deal, 67% of the combined company will be owned by Chord Energy shareholders while Enerplus shareholders will own the rest.
Synergies
The combined company will boast a deep, low-cost and high-quality inventory. The enhanced inventory position will allow the firm to increase its sub $60 WTI breakeven inventory by more than 60%, resulting in improved returns and free cashflows through various economic cycles. At the current pace, the inventory will be able to support approximately 10 years of development on a pro-forma basis.
The transaction is anticipated to be accretive to key financial metrics, including cash flow per share, free cash flow per share, net asset value and return of capital. The merged company is also expected to have improved credit profile and cost of capital. Upon closure, the company is expected to have a strong balance sheet with approximately 0.2x leverage.
After the transaction closes, the combined company is anticipated to achieve administrative, capital and operating synergies, adding up to $150 million per year. Administrative synergies are expected to initiate immediately in 2024 and increase up to $40 million in 2025. Capital synergies are expected to increase up to $55 million during 2025 and operating synergies are anticipated to rise up to $55 million in 2026. The companies mentioned that the after-tax present value may exceed $750 million.
Enhance Cash Flow
The merged company aims to generate significant free cash flow from its combined portfolio of low-cost assets by increasing efficiency and disciplined allocation of capital. The combined company has projected free cash flows of approximately $1.2 billion with a reinvestment rate of 51% in 2024. Upon closing the transaction, Chord Energy intends to maintain its peer-leading capital return framework, under which more than 75% of the free cash flow is returned to shareholders through base and variable dividends and share repurchases.
Management Views
Chord Energy commented that the merger will solidify its position in the Williston basin while creating a stronger and more efficient entity. The combined company will gain from improving returns, capital efficiency, low-cost inventory, and a peer-leading balance sheet that will aid sustainable free cash flow generation and provide increased shareholder returns.
Enerplus stated that the combined company will boast premier asset bases, operational abilities and technical acumen of both companies and give ERF shareholders the immediate value for their investment. By owning the shares of a larger company, Enerplus shareholders will also benefit from the upside potential of the combined entity.
Zacks Rank and Key Picks
Currently, CHRD and ERF both hold a Zacks Rank #5 (Strong Sell).
Investors might want to look at some better-ranked stocks in the energy sector, such as Energy Transfer LP ETand Archrock Inc. AROC. Both ArchRock and Energy Transfer presently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Energy Transfer is a midstream player that owns and operates one of the most diversified portfolios of energy assets in the United States. With a pipeline network extending more than 125,000 miles, its network spans over 44 states. With a presence in all the major U.S. production basins, the company’s outlook seems positive.
Archrock is an energy infrastructure company based in the United States, with a focus on midstream natural gas compression. It provides natural gas contract compression services and generates stable fee-based revenues.
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Energy Transfer LP (ET) : Free Stock Analysis Report
Enerplus Corporation (ERF) : Free Stock Analysis Report
Archrock, Inc. (AROC) : Free Stock Analysis Report
Chord Energy Corporation (CHRD) : Free Stock Analysis Report
