Petrohawk Energy And KCS Energy Agree to Merge Creating $3.7 Billion Enterprise; Strategic Combination Creates Significant Onsh
21 April 2006 - 7:55PM
Business Wire
Petrohawk Energy Corporation (NASDAQ: HAWK) ("Petrohawk") and KCS
Energy, Inc. (NYSE: KCS) ("KCS") today announced that they have
entered into a definitive agreement to merge the companies and
create a leading onshore oil and gas producer with an enterprise
value of approximately $3.7 billion. The combined company will
continue to be known as Petrohawk Energy Corporation (the
"Company") and will be headquartered in Houston, Texas. On a pro
forma basis, the Company will have estimated proved reserves of
approximately one trillion cubic feet of natural gas equivalents
(Tcfe) of which approximately 68% would be classified as proved
developed and approximately 82% would be natural gas. Under the
terms of the agreement, KCS stockholders will receive $9.00 per
share in cash and 1.65 shares of Petrohawk common stock for each
share of KCS common stock they own. This represents consideration
to KCS stockholders of $31.41 per share based on the closing price
of Petrohawk shares on April 20, 2006. Following the transaction,
KCS stockholders will own approximately 50% of the combined
company. The transaction positions Petrohawk as one of the top
independent exploration and production companies in the U.S. The
combination will also create one of the most concentrated and high
impact set of domestic oil and natural gas assets amongst
independent E&P companies, primarily focused in the east Texas
/ north Louisiana, onshore Gulf Coast, Permian and Anadarko /
Arkoma regions. Floyd Wilson will continue his role as the
Company's Chairman, President and CEO. KCS's James Christmas will
serve as Vice Chairman and William Hahne as Executive Vice
President and Chief Operating Officer of the combined company.
Following the completion of the merger, the Company will have nine
directors, five nominated by Petrohawk, including Floyd Wilson, and
four nominated by KCS, including James Christmas. "The asset
quality and fit derived from this transaction are unparalleled in
my experience," stated Floyd C. Wilson, Chairman, President, and
Chief Executive Officer of Petrohawk. "KCS is a proven operator;
and we believe our combined properties have extraordinary
development and exploration potential. We feel the collective staff
of Petrohawk and KCS is uniquely qualified to create value from the
tremendous upside potential inherent to both companies. Jim
Christmas will be Vice Chairman and continue to play a key role in
the Company. In addition, we hope to retain the majority of the
talented KCS staff. This combination creates the company we
originally set out to build." "We have been impressed by the job
that Floyd Wilson and his team have done in building Petrohawk to
its current position in very short order through a series of high
quality, strategic acquisitions that have made it a formidable
competitor in the areas we operate. By combining KCS, which has
grown rapidly through drilling, and Petrohawk, we are creating an
even stronger company with proved oil and gas reserves of nearly 1
Tcfe, current daily production of over 290 Mmcfe and very
significant additional potential in our core operating areas," said
James W. Christmas, Chairman and Chief Executive Officer of KCS.
"We believe that this combination not only delivers immediate value
to the stockholders of both companies, but also creates a company
well positioned to deliver above average growth in value going
forward." Petrohawk, a company grown primarily through strategic
acquisitions, and KCS, which has grown predominantly through
successful exploration and development activities, are expected to
utilize expertise from each company to realize the substantial
upside potential within the combined portfolio. Combination
Rationale: -- Creates a leading independent onshore producer which
on a combined basis possesses nearly 1 Tcfe of proven reserves,
current production of 291 million cubic feet equivalent per day and
an enterprise value of approximately $3.7 billion -- Unites
experienced technical staffs to enhance the development and
exploration potential from a virtual overlay of core operating
areas -- Combined position in the Elm Grove and Caspiana fields
represents a premier, operated core asset in the fast growing north
Louisiana natural gas basin -- Immediate accretion to cash flow,
production and NAV on a per share basis -- Pro forma capital budget
of $525 million exposes the Company to a prolific set of drilling
opportunities -- Combined asset base includes over 4,000 identified
non-proved drilling locations, as well as approximately 900 proved
drilling locations -- The Company will have over 2 Tcfe of
additional resource potential Pro Forma Statistics: -0- *T Pro
Petrohawk KCS Forma Proved Reserves (Bcfe) at December 31, 2005(a)
517 463 980 Proved Developed 64% 73% 68% Natural Gas 76% 88% 82%
Operated (based on reserves) 60% 86% 74% Estimated Current
Production (Mmcfe/d) 135 156 291 R/P (years) 10.5 8.2 9.2 *T
(a)Petrohawk reserves include approximately 106 Bcfe of
internally-estimated reserves associated with a recently closed
north Louisiana acquisition. KCS reserves include internally
estimated 11 Bcfe of reserves for another recently closed north
Louisiana acquisition. Netherland, Sewell and Associates, Inc., an
independent reserve engineering firm, prepares Petrohawk's and
audits KCS's estimated proved reserves. Combined Capital Budget:
The combined capital program for 2006 represents record activity
levels in core operating areas and includes over 500 planned wells,
including over 200 non-proved locations. -0- *T Pro Forma 2006
Capital Expenditure Budget ($ millions): HAWK KCS Pro Forma %
--------------------------------------- East Texas / North
Louisiana $51 $158 $209 40 Onshore Gulf Coast 110 88 198 38 Permian
18 41 59 11 Anadarko / Arkoma 31 28 58 11
--------------------------------------- Total $210 $315 $525 100 *T
Merger Agreement: Pursuant to the terms of the agreement, KCS
stockholders will receive $9.00 per share in cash and 1.65 shares
of Petrohawk common stock for each share of KCS common stock they
own, or collectively $450 million in cash and approximately 84
million Petrohawk common shares, not including outstanding KCS
stock options. KCS stock options will convert into Petrohawk
options pursuant to the terms of the merger agreement. The
transaction is subject to the approval of the stockholders of
Petrohawk and KCS. The boards of directors of both companies have
unanimously approved the merger agreement, which is subject to
customary conditions, including approval of listing of the
Petrohawk shares to be issued in the merger on NASDAQ and
regulatory approvals. The transaction is expected to be completed
during the third quarter of 2006. Harris Nesbitt acted as financial
advisor, Hinkle Elkouri Law Firm LLC and Thompson & Knight LLP
acted as legal advisors and Petrie Parkman provided a fairness
opinion for Petrohawk. Morgan Stanley acted as exclusive financial
advisor and rendered a fairness opinion to KCS in connection with
the transaction. Andrews Kurth LLP acted as legal advisor and
Griffis & Associates, LLC acted as technical advisor to KCS.
Investor Conference Call: Petrohawk and KCS will host a joint
conference call on April 21, 2006 to discuss the proposed
transaction at 9:00 a.m. EDT, 8:00 a.m. CDT. Investors may
participate in the conference call by telephone dialing
800-644-8607 a few minutes before the call begins and asking for
the Petrohawk Energy / KCS Energy conference call, conference ID
8373063. International callers may also participate by dialing
706-679-8184. A replay of the conference call will be available
approximately two hours after the end of the call until April 28,
2006. To access the replay, dial 800-642-1687 and reference
conference ID 8373063. International callers may listen to a
playback by dialing 706-645-9291. Petrohawk Energy Corporation is
an independent energy company engaged in the acquisition,
production, exploration and development of oil and gas, with
properties concentrated in the South Texas, Mid-Continent, East
Texas, North Louisiana, Arkoma, Permian and Gulf Coast regions. KCS
is an independent energy company engaged in the acquisition,
exploration, development and production of natural gas and crude
oil with operations in the Mid-Continent and Gulf Coast regions.
-0- *T For more information please refer to the companies' websites
or contact: For Petrohawk: Shane M. Bayless Joan Dunlap (832)
204-2727 (832) 204-2737 sbayless@petrohawk.com
jdunlap@petrohawk.com For KCS Energy: Jim Christmas (713) 964-9406
jwc@kcsenergy.com *T Additional Information for Investors This
press release contains "forward-looking statements" within the
meaning of the US Private Securities Litigation Reform Act of 1995,
based on Petrohawk's and KCS's current expectations and include
statements regarding planned capital expenditures (including the
amount and nature thereof), timing for proposed acquisitions and
divestitures, estimates of future production, statements regarding
business plans and timing for drilling and exploration
expenditures, the number of wells both companies anticipate
drilling in 2006, the number and nature of potential drilling
locations, future results of operations, quality and nature of the
combined asset base, the assumptions upon which estimates are based
and other expectations, beliefs, plans, objectives, assumptions,
strategies or statements about future events or performance (often,
but not always, using words such as "expects", "anticipates",
"plans", "estimates", "potential", "possible", "probable", or
"intends", or stating that certain actions, events or results
"may", "will", "should", or "could" be taken, occur or be
achieved). Statements concerning oil and gas reserves also may be
deemed to be forward looking statements in that they reflect
estimates based on certain assumptions that the resources involved
can be economically exploited. Forward-looking statements are based
on current expectations, estimates and projections that involve a
number of risks and uncertainties, which could cause actual results
to differ materially from those, reflected in the statements. These
risks include, but are not limited to: the possibility that the
companies may be unable to obtain stockholder or other approvals
required for the acquisition; the possibility that problems may
arise in the integration of the businesses of the two companies;
the possibility that the acquisition may involve unexpected costs;
the possibility the combined company may be unable to achieve
cost-cutting objectives; the risks of the oil and gas industry (for
example, operational risks in exploring for, developing and
producing crude oil and natural gas; risks and uncertainties
involving geology of oil and gas deposits; the uncertainty of
reserve estimates; the uncertainty of estimates and projections
relating to future production, costs and expenses; potential delays
or changes in plans with respect to exploration or development
projects or capital expenditures; health, safety and environmental
risks and risks related to weather such as hurricanes and other
natural disasters); uncertainties as to the availability and cost
of financing; fluctuations in oil and gas prices; inability to
realize expected value from acquisitions, inability of our
management team to execute its plans to meet its goals, shortages
of drilling equipment, oil field personnel and services,
unavailability of gathering systems, pipelines and processing
facilities and the possibility that government policies may change
or governmental approvals may be delayed or withheld. Additional
information on these and other factors which could affect either
companies' operations or financial results are included in the
companies' other reports on file with the United States Securities
and Exchange Commission. Forward-looking statements are based on
the estimates and opinions of both companies' management at the
time the statements are made. Neither Petrohawk nor KCS assume any
obligation to update forward-looking statements should
circumstances or management's estimates or opinions change.
Additional Information About the Transaction and Where to Find It:
Petrohawk and KCS will file materials relating to the transaction
with the SEC, including one or more registration statement(s) that
contain a prospectus and a joint proxy statement. Investors and
security holders of Petrohawk and KCS are urged to read these
documents (if and when they become available) and any other
relevant documents filed with the SEC, as well as any amendments or
supplements to those documents, because they will contain important
information about Petrohawk, KCS and the transaction. Investors and
security holders may obtain these documents free of charge at the
SEC's website at www.sec.gov. In addition, the documents filed with
the SEC by Petrohawk may be obtained free of charge from
Petrohawk's website at www.petrohawk.com. The documents filed with
the SEC by KCS may be obtained free of charge from KCS's website at
www.kcsenergy.com. Investors and security holders are urged to read
the joint proxy statement/prospectus and the other relevant
materials when they become available before making any voting or
investment decision with respect to the proposed acquisition.
Petrohawk, KCS and their respective executive officers and
directors may be deemed to be participants in the solicitation of
proxies from the stockholders of Petrohawk and KCS in favor of the
acquisition. Information about the executive officers and directors
of Petrohawk and their direct or indirect interests, by security
holdings or otherwise, in the acquisition will be set forth in the
proxy statement-prospectus relating to the acquisition when it
becomes available. Information about the executive officers and
directors of KCS and Petrohawk and their direct or indirect
interests, by security holdings or otherwise, in the acquisition
will be set forth in the proxy statement-prospectus relating to the
acquisition when it becomes available.
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