Noble Energy’s $2.1 billion ploy for Rosetta Resources fuses together two Houston-based oil companies in the first deal of its kind since oil prices began falling last year.
Noble announced early Monday that it will buy the smaller Rosetta in an all-stock transaction that gives Noble access to the oil-rich swaths of the Eagle Ford and Permian Basin, two of the largest shale plays in the United States.
“This is an exciting step, an exciting time for Noble Energy,” Chairman, CEO and President Dave Stover said in a call with investors Monday.
The announcement marks the first time since the oil collapse began in October 2014 that a major U.S. oil and gas producer snapped up another company.
The transaction allows Noble to expand its resources and diversify its portfolio by securing positions in the two shale plays are the “most economic” in the United States, Stover said.
“This was a way to jump start our entry into both basins,” he said in an interview with FuelFix.
Stover declined to give details about the behind-the-scenes negotiations leading up to Monday’s announcement but said Noble had been eyeing Rosetta as Noble’s business development team for years has been conducting detailed mapping and analysis of the Eagle Ford and Permian Basin regions.
Rosetta was an attractive buy because it has concentrated on the sweet spots of two key U.S. shale plays, Stover said. Instead of purchasing individual assets in the regions, Noble opted instead to buy Rosetta outright to gain access to the company’s knowledge about the Eagle Ford and Permian Basin.
Rosetta’s employees with experience in the Eagle Ford and Permian Basin will be rolled into Noble’s staff, said Stover, who was en route to meet with Rosetta’s staff of more than 300 people on Monday morning to discuss the deal.
“The idea is to make this an additive deal for us,” Stover said. “There could be some synergies here and there, some duplication of things we want to streamline, but for the most part, you are bringing in two new areas and we want the expertise to come with that.”
Because both firms are headquartered in Houston, melding the two should be easier, Stover said.
Noble said it will buy up all of Rosetta’s common stock, worth $2.1 billion, as well as take on the Houston-based independent oil and gas company’s net debt of $1.8 billion, Noble announced early Monday morning. The boards of both companies unanimously approved the transaction.
“I don’t see this diminishing our financial strength at all,” he said.
Acquiring Rosetta gives Noble cheap access to high-quality resources, while Rosetta stands to benefit from Noble’s scale and strong balance sheet, according to an analysis by investment banking firm Tudor, Pickering, Holt & Co.
Rosetta has a sizable position in the oil-rich areas of the shale plays, including 50,000 net acres in the Eagle Ford Shale in South Texas and 56,000 net acres in the Permian Basin in West Texas. Noble said it has identified more than 1,800 places to drill in those regions, which could unlock about 1 billion barrels of oil equivalent.
“This is more about having an opportunity to get into some very high-quality assets that expands our position in the U.S. and gives us more scale and leverage for some of the expertise we developed,” Stover said in the call.
Noble has major operations in the DJ Basin in northern Colorado and the Marcellus Shale, but analysts had been expecting Noble to make a play for adding additional U.S. acreage. The company plans to grow production of Rosetta’s assets by 15 percent within the next year using its own cash flow.
Liquids make up more than 60 percent of Rosetta’s proven reserves and existing output, according to the statement. The company pumped 66,000 barrels of oil equivalent per day in the first quarter of the year.
“I have long respected Noble Energy and its management team, which has a strong track record of delivering substantial value to shareholders, both from the U.S. onshore business as well as global offshore exploration and development,” Rosetta’s Chairman, CEO and President Jim Craddock said in a statement. “I am confident the combined team, strong balance sheet, and premier asset base is poised for further success and shareholder value creation.”
The deal gives Rosetta shareholders .542 of a Noble share for each share of Rosetta stock. Once the transaction is final, which could happen by the third quarter of this year, Rosetta shareholders should own nearly 10 percent of Noble’s outstanding shares. The all-stock transaction allowed Noble to maintain its “financial firepower,” Stover said.
Noble shares tumbled $3.62, or 7.2 percent, early Monday to $45.50 on the New York Stock Exchange. Rosetta’s shares surged by $4.90, or 25 percent, to $24.24.