Magnum Hunter Resources Corporation announced that it has entered into a definitive agreement to acquire Appalachian Basin focused NGAS Resources, Inc. for approximately $98 million (USD) in common stock and assumed liabilities. Magnum Hunter has agreed to acquire NGAS for $0.55 per share with a fixed exchange ratio of 0.0846 based on an agreed Magnum Hunter stock price of $6.50 per share. (There are no collars on the fixed exchange ratio based on the trading price of either Magnum Hunter and/or NGAS).
Magnum Hunter will issue approximately 6.6 million shares, representing approximately 8% of Magnum Hunter's fully diluted shares outstanding. The assumed liabilities will be refinanced under a new senior credit facility with an initial borrowing base of $120 million, to be provided by BMO Capital Markets Corp. (BMO). Each company's respective Board of Directors has given their unanimous approval of the transaction. BMO acted as Financial Advisor and Capital One Southcoast, Inc. provided a Fairness Opinion to Magnum Hunter's Board of Directors. Fulbright & Jaworski L.L.P. acted as Legal Advisor to Magnum Hunter.
MHR Shares to be Issued
* 4.2 million MHR common shares, or approximately $27.3 million, issued to NGAS shareholders
* 2.4 million MHR common shares, or approximately $15.9 million, issued to certain holders of NGAS' 6% Convertible Notes which are expected to convert into NGAS common shares at or prior to Closing
* $10 million payment to a third-party to restructure an "out-of-market" gas gathering and transportation agreement through issuance of MHR common shares at closing
Liabilities and Other Items
* Senior credit facility with approximately $35.2 million outstanding
* Approximately $14.7 million in remaining NGAS 6% Convertible Notes to be paid off at Closing
* Other long-term debt of about $6.3 million to be assumed
* Cash and positive working capital of approximately $11.6 million as of September 30, 2010
NGAS is a British Columbia corporation, therefore a Plan of Arrangement (Canadian Plan of Merger) will be filed in British Columbia in order to complete the transaction. Such Plan requires a two-thirds favorable vote for the transaction by the NGAS common shareholders and the issuance of a favorable Final Order by the Supreme Court of British Columbia. NGAS intends to distribute a Proxy Statement as soon as practicable to all NGAS common shareholders announcing a shareholder meeting whereby NGAS common shareholder approval of this transaction will be sought. Issuance of Magnum Hunter common stock will be exempt from U.S. Securities and Exchange Commission registration requirements due to the aforementioned Canadian court approval. The transaction is expected to close by March 31, 2011 or soon after that date.
* Proved reserves of 78.4 Bcfe as of December 31, 2009 (74% natural gas and 65% PDP)
* Long-lived reserves, with an R/P ratio of 23.4 years
* Daily production of approximately 9.2 MMcfe as of September 30, 2010
* Approximately [360,000] net lease acres (68% undeveloped)
* Multi-year inventory of approximately 2,400 identified low-risk horizontal drilling locations (historical success ratio of 98%)
* Ability to achieve an estimated $7 million to $8 million of synergies and cost reductions through restructured gas transportation agreement, consolidation of G&A with Triad Hunter, elimination of public company expenses and possible spin-off of NGAS' broker-dealer business to a third-party management group
* Exposure to highly attractive Huron Shale
* Additional liquids potential in emerging Weir oil play
* Highly accretive to reserves, production and cash flow per share
* Ability to hold significant lease acreage without substantial drilling expenditures through HBP acreage and utilization of future Partnership funds
Gary C. Evans, Chairman and CEO of Magnum Hunter Resources Corporation commented, "We have been studying the possibility of a business combination with NGAS for most of 2010. I am very pleased to make this announcement that our goal has been accomplished. This transaction enables our combined enterprise to own high-quality, long-lived proved developed producing assets with significant development upside covering approximately 300,000 acres. We believe the combination provides tremendous value for both companies' shareholders. At Closing, all financial measures are accretive to our shareholder base. Additionally, Magnum Hunter's upside exposure in one of our three existing core areas, the Appalachian Basin, is substantially increased with the addition of NGAS to our portfolio. Significant cost savings from duplicative business operations and anticipated synergies will create substantial value accretion for the combined entity. The Company's acquisition of NGAS essentially creates a long dated call option in natural gas while we continue to develop some of our other high return resource plays. We have been impressed with the operating team at NGAS including the land, geology, and engineering professionals and see this group assisting our future growth plans for the combined enterprise. We look forward to working with the NGAS management team and Board of Directors toward final closing in early 2011."