Forestar Group Inc. (NYSE: FOR) today announced the signing of a
definitive agreement to acquire CREDO Petroleum Corporation
(NASDAQ: CRED) in an all cash transaction for $14.50 per share,
representing an equity purchase price of approximately $146
million. The agreement has been approved by each company’s Board of
Directors.
“This strategic acquisition is consistent with our recently
announced Triple in FOR initiatives to accelerate value
realization, optimize transparency and disclosure and raise net
asset value through strategic and disciplined investments,” said
Jim DeCosmo, president and chief executive officer of Forestar.
“This acquisition is expected to more than double Forestar’s
existing oil and gas production and proven reserves, provide
Forestar with operating flexibility, and create a solid platform
for continued growth.”
Following closing of the proposed transaction, Forestar will
have meaningful ownership and operations in several strategic oil
and gas formations including the Bakken and Three Forks, increased
exposure to oil, and additional transparency and disclosure
benefits.
Key highlights of the acquisition include:
- Securing mineral leasehold interests in
approximately 125,000 net mineral acres, including approximately
6,000 net mineral acres comprising about 50 units in the core of
the Bakken and Three Forks formations
- Increasing Forestar’s reserves by over
135% to 7.1 million BOE (barrels of oil equivalent) based upon
year-end 2011 reserves, with oil representing 43% of total combined
reserves (on a BOE basis)
- Increasing Forestar’s annual production
to over 723,000 BOE (41% oil) based on full year 2011 results
“Our oil and gas strategic initiatives have been principally
focused on growing production and reserves by accelerating the
marketing of our minerals, promoting exploration and drilling
activity, and participating in lower-risk working interest
investments,” said Mr. DeCosmo. “Following the acquisition of
Credo, we will have the scale and option to operate and capitalize
on attractive oil and gas investment opportunities. This important
milestone will allow us to leverage the newly acquired leasehold
interests as well as our existing mineral rights to recognize and
responsibly deliver the greatest value from every acre.
“This transaction and the ability to operate enhances our
ability to report additional reserve categories on existing mineral
acreage, and provides additional transparency and disclosure
related to their long-term potential value. This acquisition
establishes a meaningful oil and gas platform and a strong oil and
gas team that is well positioned to deliver shareholder value for
years to come.”
CREDO Petroleum
Corporation
Credo is an independent oil and gas exploration, development and
production company based in Denver, Colorado. Credo owns leasehold
interests in approximately 125,000 net mineral acres and has
operations in the Bakken and Three Forks formations of North
Dakota, the Lansing – Kansas City formation in Kansas and Nebraska,
and the Tonkawa and Cleveland formations in the Texas Panhandle.
Credo owns working interests in approximately 340 producing wells
and overriding royalty interests in about 1,200 wells and acts as
operator for approximately 108 of the working interest wells.
Combination Summary
Following the acquisition of Credo, the scale of Forestar’s oil
and gas business will increase considerably, including the
following key operating highlights:
($ in
millions)
YE 2011
Metrics
Forestar
Credo
Combined
Production Production (BOE) 422,200 301,000 723,200 %
Oil 36% 49% 41%
Proven
Reserves
Reserves (MMBOE) 3.0 4.1 7.1 PV-10 Proven Reserves $81 $62 $143
Future Net Cash Flow $134 $116 $250
Mineral
Interests*
Mineral & Leasehold Acres 594,000 125,000 719,000 Basins 5 5 10
States 7 7 14
Note: Data based on Credo Form 10-K for year ended 10/31/11 and
Forestar Form 10-K for year ended 12/31/11
Note: All reserve data before income taxes
*Includes both fee and leasehold interests; Forestar acres as of
first quarter end 2012.
“Credo has been successfully transitioning from a natural gas to
oil focused strategy and increasing exploration and drilling
activity as hundreds of drilling locations have been de-risked,”
said Mr. DeCosmo. “Credo is just beginning to benefit from its
ownership in the prolific Bakken and Three Forks formations, with
only 1.3 million BOE of reserves associated with this interest at
fiscal year-end 2011. Going forward, we expect to see meaningful
growth in production and reserves in the Bakken given Credo’s 8%
average working interest position in approximately 50 total units.
There is the potential for Forestar to participate in as many as
400 total wells in the primary Bakken and Three Forks zones.”
Transaction Summary
The transaction is structured as a reverse subsidiary merger,
with a total equity value of approximately $146 million, or $14.50
per share of Credo common stock. Forestar has obtained a commitment
for financing provided by Key Bank National
Association that, combined with available liquidity, is
sufficient to fund the acquisition. Forestar intends to pursue
amendments to its existing credit facilities to fund a significant
portion of the purchase price. The transaction is subject to
customary closing conditions, including approval by Credo’s
stockholders, and is expected to close in the second half of 2012.
In connection with the merger agreement, Forestar entered into
voting agreements with James T. Huffman, Chairman of the Board of
Directors of Credo, RCH Energy Opportunity Fund III, LP and RCH
Energy SSI Fund, LP to vote the shares of Credo common stock held
by them in favor of the merger agreement, and the transactions
contemplated thereby subject to the terms and conditions of the
voting agreements.
Following the transaction, Forestar expects to maintain a solid
balance sheet and ample liquidity. This acquisition is expected to
be accretive to Forestar’s earnings in the first full year of
ownership.
Forestar has engaged Goldman Sachs as a financial advisor in
connection with this transaction and Skadden, Arps, Slate, Meagher
& Flom LLP as legal counsel. Houlihan Lokey Financial Advisors,
Inc. and Northland Capital Financial Services, LLC are acting as
financial advisors to Credo, with Davis, Graham & Stubbs, LLP
as legal counsel.
Conference Call
Forestar will host a conference call this morning, June 4, 2012,
at 11:00 a.m. ET to discuss the transaction. The meeting may be
accessed through webcast or by conference call. The webcast may be
accessed through the internet by visiting Forestar’s website at
www.ForestarGroup.com and selecting “Investor Relations.” To access
the conference call, listeners calling from North America should
dial 1-866-510-0705 at least 15 minutes prior to the start of the
meeting. Those wishing to access the call from outside North
America should dial 1-617-597-5363. The password is Forestar.
Replays of the call will be available for two weeks following the
completion of the live call and can be accessed at 1-888-286-8010
in North America and at 1-617-801-6888 outside North America. The
password for the replay is 68072260.
About Forestar Group
Forestar Group Inc. operates in three business segments: mineral
resources, real estate and fiber resources. At the end of first
quarter 2012, the real estate segment owns directly or through
ventures over 146,000 acres of real estate located in nine states
and twelve markets in the U.S. The real estate segment has 16 real
estate projects representing approximately 27,600 acres currently
in the entitlement process, and 73 entitled, developed and under
development projects in seven states and eleven markets
encompassing over 16,000 acres, comprised of almost 27,000
residential lots and over 2,400 commercial acres. The mineral
resources segment manages approximately 594,000 net acres of oil
and gas mineral interests located principally in Texas, Louisiana,
Alabama, and Georgia. Also included in the mineral resources
segment is a 45% nonparticipating royalty interest in groundwater
produced or withdrawn for commercial purposes from approximately
1.4 million acres in Texas, Louisiana, Georgia and Alabama and
about 17,800 acres of groundwater leases in central Texas. The
fiber resources segment includes the sale of wood fiber and
management of our recreational leases. Forestar’s address on the
World Wide Web is www.forestargroup.com.
Forward Looking Statements
This release contains “forward-looking statements” within the
meaning of the federal securities laws. Forward-looking statements
are typically identified by words or phrases such as “will,”
“anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,”
“believe,” “target,” “forecast,” and other words and terms of
similar meaning. These statements reflect management’s current
views with respect to future events and are subject to risk and
uncertainties. We note that a variety of factors and uncertainties
could cause our actual results to differ significantly from the
results discussed in the forward-looking statements, including the
timing to consummate the proposed merger, the risk that a condition
to closing of the proposed merger may not be satisfied; our ability
to achieve the synergies and value creation contemplated by the
proposed merger; our ability to promptly and effectively integrate
Credo’s businesses, and the diversion of management time on
merger-related matters. Other factors and uncertainties that might
cause such differences include, but are not limited to: general
economic, market, or business conditions; changes in commodity
prices; the opportunities (or lack thereof) that may be presented
to us and that we may pursue; fluctuations in costs and expenses
including development costs; demand for new housing, including
impacts from mortgage credit availability; lengthy and uncertain
entitlement processes; cyclicality of our businesses; accuracy of
accounting assumptions; competitive actions by other companies;
changes in laws or regulations; and other factors, many of which
are beyond our control. Except as required by law, we expressly
disclaim any obligation to publicly revise any forward-looking
statements contained in this news release to reflect the occurrence
of events after the date of this news release.
Important Additional Information and
Where to Find It
Credo intends to file with the SEC and mail to its stockholders
a proxy statement on Schedule 14A pursuant to Section 14(a) of
the Exchange Act in connection with the merger. This document will
contain important information about Forestar, Credo, the merger and
other related matters. Credo’s investors and security holders are
urged to read this document carefully when it is available. Credo’s
investors and security holders will be able to obtain free copies
of the proxy statement and other documents to be filed with the SEC
by Credo through the web site maintained by the SEC at www.sec.gov.
Credo’s investors and security holders may also obtain these
documents, free of charge, from Credo’s website
(www.credopetroleum.com) under the tab “Corporate Governance” and
then under the heading “SEC Filings” or by contacting Credo’s
Investor Relations Department at 303-297-2200.
Credo and its directors and executive officers may be deemed to
be participants in the solicitation of proxies in respect of the
transactions contemplated by the merger agreement. Information
regarding the persons who may, under the rules of the SEC, be
deemed participants in the solicitation of Credo stockholders in
connection with the merger will be set forth in the proxy statement
when it is filed with the SEC. Credo’s investors and security
holders can find information about Credo’s executive officers and
directors in its definitive proxy statement filed with the SEC on
February 28, 2012.
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