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Permalink Reply by Skip Peel - Mineral Consultant on May 16, 2016 at 6:05

Range Resources buying Memorial Resource in its biggest deal ever

May 16, 2016 10:19 AM  star-telegram.com

By Naureen S. Malik  Bloomberg News

Fort Worth-based Range Resources agreed to buy Memorial Resource Development of Houston in a $3.3 billion all-stock deal to take advantage of growing demand from natural gas exports and chemical manufacturers. It marks Range’s single largest deal on record.

Memorial Resource shareholders will get 0.375 shares of Range stock for each share held, implying a value of $15.75 a share, or a 17 percent premium to the closing price on May 13, the companies said in a statement Monday. The transaction is valued at $4.4 billion when $1.1 billion of debt is included.

The combination — one of the few U.S. energy mergers during the market rout — will give Range access to an emerging gas export market and to properties in northern Louisiana, adding to its operations in Oklahoma, Pennsylvania and Texas. While producers saw shares collapse last year with the commodities slump that slashed prices for oil and gas, Range has rebounded 70 percent this year.

“What we’ve been advocating for Appalachian producers is that they diversify their footprint and use their stock as currency. It’s exactly what Range just did,” said Subash Chandra, a research analyst at Guggenheim Securities. “I think it’s very smart on Range’s part. It’s just another example of how they are miles ahead of the competition.”

Range reported a smaller-than-forecast first-quarter loss last month. It supplied the first U.S. exports of waterborne ethane earlier this year.

Export market

The “sizeable position” in northern Louisiana will better allow Range to take advantage of rising gas exports to Mexico by pipeline and liquefied natural gas shipments by tanker, the company said in an investor presentation. Range will also be able to supply growing demand from Gulf Coast power producers and petrochemical plants.

With its Texas roots, Range became one of the biggest gas producers in Appalachia’s Marcellus shale. Range and other drillers have been so good at cutting costs and squeezing gains from Marcellus wells that supplies became stranded because of a lack of pipeline capacity in the region.

The Memorial acquisition is the third announced by Range this year, making it their most active deal-making year since 2007 when the shale boom was just getting started, according to data compiled by Bloomberg.

Range shares (ticker: RRC) fell $2.21 a share, or more than 5 percent, to $39.80 by mid-morning. Memorial Resource (ticker: MRD) rose $1.32, or about 10 percent, to $14.77.

The transaction is “accretive to our cash flow, bolsters our credit profile and enhances the overall portfolio,” Jeff Ventura, Range’s chief executive officer, said in the statement. Memorial’s footprint in Louisiana gives Range access to the country’s new gas export market, he said.

The boards of both companies have unanimously approved the terms. Both expect completion, which is subject to shareholder and regulatory approvals, in the second half of 2016. Credit Suisse Group advised Range, while Morgan Stanley and Barclays worked with Memorial Resource.

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