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Comstock buying Haynesville producer Covey Park
HAYNESVILLE
COMSTOCK Resources announced on June 10 that it had agreed to buy shale gas producer Covey Park Energy in a cash and stock deal worth US$1.1 billion. The transaction also includes the assumption of Covey Park’s debt and the retirement of its existing preferred units, also worth roughly US$1.1 billion, bringing the enterprise value of the deal to US$2.2 billion.
Covey Park is a privately held producer with operations in the Haynesville shale gas forma- tion. e acquisition will more than triple Com- stock’s position in the Haynesville, making the combined company the largest operator in the play. e deal is anticipated to more than dou- ble the combined company’s net production to over 1.13 bcf (32 mcm) of gas equivalent per day. A er the acquisition is completed, Comstock will also own around 374,000 net acres (1,514 square km) in total, of which 293,000 net acres (1,186 square km) will be located in the Haynes- ville. The companies noted they would also have roughly 2,000 net drilling locations in the Haynesville when they combine, with around 1,300 of these allowing for lateral lengths of over 5,000 feet (1,524 metres) to be drilled.
e new entity will have 5.4 tcf (153 bcm) equivalent of proven reserves by US Securities and Exchange Commission (SEC) standards and 7.6 tcf (215 bcm) equivalent of proven reserves in line with Society of Petroleum Engineers (SPE) standards.
Covey Park’s equity owners will receive US$700 million in cash, US$210 million of a newly issued perpetual convertible preferred stock and 28.8 million shares of newly issued Comstock common stock at a price of US$6.00 per share, the companies said.
“A er a year of evaluating several potential targets in the Haynesville shale, we believe we have found the perfect merger partner,” Com- stock’s CEO, Jay Allison, said. “ is merger is an excellent t with our existing acreage and con- tinues our strategic plan of creating signi cant
scale and resource depth in the Haynesville shale basin. e combined company will have a stronger balance sheet, enhanced by a large inventory of high-quality, low-cost and high-re- turn drilling opportunities. In integrating Covey Park we plan to focus on operating e ciency and having a combined drilling programme that pro- vides for substantial free cash ow to achieve our goal of reducing our leverage.”
In the same announcement, it was reported that Dallas Cowboys owner Jerry Jones – Com- stock’s largest shareholder – would invest an additional US$475 million in cash for 50 million newly issued shares of the company’s common stock. is additional cash injection will bring Jones’ total investment in Comstock to around US$1.1 billion, and he will own a 75% stake in the company. Private equity rm Denham Cap- ital will be the second-largest Comstock share- holder with a 16% interest.
e deal, which is expected to close by July 31, comes as there is a resurgence of interest in the Haynesville shale. e play featured prom- inently in the early days of the shale gas boom, and is now attracting drillers again owing to the growing need for feedstock gas to supply new LNG export terminals on the US Gulf Coast. e Haynesville bene ts from its proximity to the coast, and existing infrastructure in the region.
“You must look at this transaction as a shot heard round the [Haynesville] basin that [Com- stock] truly does intend to consolidate the basin into a singular, low-cost production juggernaut,” Atlas Consulting’s CEO, Dallas Salazar, was quoted by Reuters as saying.
e US Energy Information Administra- tion (EIA) expects Haynesville production to reach 11.4 bcf (322 mcm) per day this month, up 287 mmcf (8 mcm) per day from May. e play is expected to have the highest growth in shale gas output a er the Appalachia region, which comprises the giant Marcellus and Utica formations.™
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w w w . N E W S B A S E . c o m Week 23 13•June•2019