Tuesday, September 6, 2016

EOG To Buy Privately-Held Yates Petroleum; Enbridge To Buy Spectra Energy -- September 6, 2016

Note: this is not an investment site. Do not make any investment, financial, travel, job, relationship, business, or space travel plans based on what you read here or think you may have read here. 


Later, 8:36 a.m. Central Time: Barron's -- with merger, Spectra and Enbridge see eight (8) years of 10 - 12% dividend growth. Wow!  Dividend growth at 8 - 10% through 2024. Another open-book test.
  • 2016: $1.62
  • 2017: 1.08 x 1.62 = 1.75
  • 2018: 1.08 x 1.75 = 1.89
  • 2019: 1.08 x 1.75 = 2.04
  • 2020: 1.08 x 2.04 = 2.20
  • 2021: 1.08 x 2.20 = 2.38
  • 2022: 1.08 x 2.38 = 2.57
  • 2023: 1.08 x 2.57 = 2.78
  • 2024: 1.08 x 2.78 = 3.00 
Memo to self: check on this in 2024.
Original Post
Active rigs:

Active Rigs3375196185192

RBN Energy: building crude oil pipelines -- how to make preliminary cost estimates.
The Shale Revolution sparked a multibillion-dollar re-plumbing of the U.S. crude oil pipeline network that continues to this day, two years after oil prices started falling and one year after oil production volumes followed suit. While the pace of development has at times seemed hectic, the individual decisions to build new pipelines involve a lot of studying, vetting and number crunching. After all, pipelines don’t come cheap, and their success depends to a considerable degree on their long-term usefulness to the market. One of the most important factors in determining whether a crude oil pipeline project makes sense is its capital cost and, with that, the cost of moving oil through it. Today, we continue our look at crude pipeline economics with a discussion of the basics of estimating pipe size and cost, and figuring the optimal capacity of a given pipeline project.
EOG To Acquire Yates Petroleum


September 11, 2016: why oil companies are gobbling each other up. A bit of fluff because it's not particularly accurate. In fact, there have been very few M&A deals considering how far the oil sector has fallen. Part of the reason: regulators not particularly favorable to M & A in the oil patch. But some data points from the linked article:
  • over the summer, Pioneer Natural Resources also picked up acreage in the Permian, as did Concho Resources, which announced a $1.6 billion deal last month
  • one analyst: “US oil production will continue to decline, demand will continue to grow modestly and the inventory overhang will decline,” he said. “This will help oil prices rise slowly, reaching $60 in 2018."
  • same analyst: ExxonMobil, Chevron, and Occidental Petroleum are all on the lookout for smart deals, with still more appetite on tap for EOG, Apache, Pioneer and Concho.
Original Post

EOG to buy privately-held Yates Petroleum in $2.5 billion deal.
  • EOG Resources agrees to acquire privately-held Yates Petroleum as well as some of Yates' subsidiaries and other entities in a cash and stock deal valued at $2.5B, raising its position in the Permian Basin and Powder River Basin.
  • EOG will issue slightly more than 26M common shares valued at $2.3B and pay $37M in cash, and assume $245M of Yates' debt while receiving $131M in cash from Yates at closing.
  • EOG says the Yates acquisition adds ~1,740 net premium drilling locations in the Delaware Basin and Powder River Basin to EOG's inventory of premium drilling locations, a 40% increase; EOG plans to begin drilling on the Yates acreage in late 2016 with additional rigs added in 2017.
From the press release:
EOG and Yates Petroleum Corporation today announced definitive agreements under which EOG has agreed to combine with Yates Petroleum Corporation, Abo Petroleum Corporation, MYCO Industries, Inc. and certain other entities (collectively, Yates). Under the terms of this private, negotiated transaction, EOG will issue 26.06 million shares of common stock valued at $2.3 billion and pay $37 million in cash, subject to certain closing adjustments and lock-up provisions. EOG will assume and repay at closing $245 million of Yates debt offset by $131 million of anticipated cash from Yates, subject also to certain closing adjustments.
Yates is a privately held, independent crude oil and natural gas company with 1.6 million net acres across the western United States. Since 1924, when it drilled the first commercial oil well on New Mexico state trust lands, Yates has amassed a rich acreage position across the western United States.

Highlights of Yates' assets are summarized below:
  • Production of 29,600 barrels of crude oil equivalent per day, net, with 48 percent crude oil
  • Proved developed reserves of 44 million barrels of oil equivalent, net 
  • Delaware Basin position of 186,000 net acres 
  • Northwest Shelf position of 138,000 net acres 
  • Powder River Basin position of 200,000 net acres 
  • Additional 1.1 million net acres in New Mexico, Wyoming, Colorado, Montana, North Dakota and Utah.
($2.3 billion +$37 million +$245 million -$131 million) = $2.45 billion / 1.624 million acres = $1,500 acre.

If the deal had only included the Delaware Basin: $2.5 billion / 186,000 net acres = $13,500 / acre.

Note:  I often make simple arithmetic errors; some numbers are rounded.

This was a steal. Even the "pros" agree. Look at this from a contributor over at SeekingAlpha had to say:
  • EOG Resources surges more than 6%, as analysts say its $2.5B acquisition of Yates Petroleum strengthens its Permian Basin presence at an inexpensive price.
  • Tudor Pickering & Holt analysts say EOG is paying $7K-$8K/acre for the Delaware Basin properties, assuming a value on proven reserves that are producing and still being developed of ~$800M for the 29.6M boe/day EOG said it is picking up (48% oil). [I think it's a lost less than $7 - $8/acre for the Delaware.]
  • Simmons analyst Pearce Hammond calculates that the deal comes in well below some recent transactions in the play, including Diamondback Energy's $560M purchase of Luxe Energy, which he says came in at $26K-$27K/acre.
  • Cowen analysts say EOG is paying less than $1M per new premium location, and the deal is $2/share accretive to net asset value just on initial locations.
Yes, this is a huge story.

EOG (prior to deal announcement, except share prices as indicated):
  • close Friday: $88.91
  • futures Tuesday: $89.55
  • closed on Tuesday at: $94.93 -- up almost 7%
  • market cap: $50 billion
  • enterprise value: $55 billion
  • total cash: $780 million
  • total debt: $7 billion  
Enbridge To Acquire Spectra Energy 


Later, 3:45 p.m. Central Time: The WSJ weighs in -- suggests this is a no-brainer. We'll see. I'll believe it when I see it. The regulators love to kill these deals; makes them look they are doing something. From the link:
A proposed pipeline deal between Canada’s Enbridge and Spectra of the U.S. should succeed because of simplicity, limited overlap and low commodity exposure. 
Investor demand for chunky, rising payouts became a challenge as volumes, hydrocarbon prices, and even customers’ creditworthiness sank over the past two years. Their response, a wave of proposed mergers, has seen as many failures as successes. The latest, a $28 billion proposed deal between announced Tuesday between Canada’s Enbridge Inc. and Texas-based Spectra Energy Corp., looks like an example of the latter.
The proof was in Spectra’s share price, which jumped above the original $40.33 value of the all-share offer to as much as $42.33 early Tuesday afternoon. That reflected a rise in Enbridge’s shares and a merger arbitrage spread of less than 5% for a deal expected to close in early 2017.
Traders clearly are betting that antitrust and financing concerns are minimal and that the premium paid for Spectra was modest considering potential synergies. Under the deal, announced jointly by the companies, Spectra Energy shareholders will receive shares of Enbridge valued at around $40.33 each, or a premium of about 11.5%, based on the closing price of Enbridge shares on Friday.
Later, 12:59 p.m. Central Time: Bloomberg weighs in, further increasing the changes this deal is DOA.  Bloomberg calls the deal "exciting." That's a word Obama regulators do not like to hear. Remember: "no drama, Obama." His own words.

Later, 12:58 p.m. Central Time: this is the only headline the regulators will need to read before they kill the deal -- Enbridge seeks to create the 'FedEx' of pipelines.

Original Post
$28 billion -- WSJ.  
New company will have assets in crude oil, liquids and natural gas pipelines, terminal and midstream operations.Canadian pipeline company Enbridge Inc. on Tuesday agreed to buy Houston’s Spectra Energy Corp. in an all-stock deal valued at about $28 billion, creating a major North American energy-infrastructure company at a time when energy-industry operators continue to deal with the fallout from low oil prices.

The arrangement has an enterprise value of about $127 billion and the deal, which has the full support of the boards of both Enbridge and Spectra, is expected to close in the first quarter of 2017, the companies said in a release.

On closing, Enbridge shareholders are expected to own about 57% of the combined company, to be called Enbridge Inc., and Spectra Energy shareholders will own the remaining 43%. The merged company will have assets spanning crude oil, liquids and natural gas pipelines, terminal and midstream operations, a regulated utility portfolio and renewable power generation operations.
GE To Acquire Two European 3-D Printing Firms

From SeekingAlpha:
  • General Electric has agreed to acquire two European 3-D printing companies for a combined $1.4B, tapping into manufacturers' growing demand for digital technologies.
  • Both Arcam and SLM Solutions make machines that can print metal parts used in aircraft components such as turbines.
  • 3-D printing "will drive new levels of productivity for GE including a wide array of additive manufacturing customers, and for the industrial world," CEO Jeff Immelt said in a statement.
The Market

At the close: what a great day for the market. It did not go up all that much, but the NYSE saw 299 issues trade at new 52-week highs; and only 10 issues (about the same as at the opening) traded at new lows. 

Mid-afternoon trading: new highs on the NYSE now hit 272. New lows, now at 9, have not increased. 

Early afternoon trading: new highs on the NYSE now hit 261. 

Noon trading: the market is now down slightly, down 8 points (the Dow 30). But there are now 249 issues on the NYSE reporting new highs.

Early morning trading: NYSE on a tear --
  • new highs: 226 -- EOG, Spectra Energy, Sprint, WPX, XLNX (not on NYSE),
  • new lows: 10
Opening: Dow 30 opens up 45 points. Summer is over. The traders are back. ENB opens up 1% up after acquisition announcement (see above). EOG surges: up 3.45% on announcement. In early morning trading, ENB surges almost 4% following Barron's article on dividend growth. XLNX trading at new highs. There are going to be a lot of new highs reported today.

Futures: up about 30 points (Dow 30) just before the open. Positive news on oil brings WTI to about $45. Trivial. SRE at 105.18 at close on Friday. 

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