Texas-based Comstock Resources agreed with private natural gas company Covey Park to acquire the latter in a cash and stock transaction valued at around US$2.2 billion, the companies said.
Comstock will also assume the outstanding debt of the company which has operations in the core of the Haynesville shale basin.
After the acquisition, Comstock will become a basin leader in the Haynesville, expanding its current assets and taking the company closer to its strategic and financial goals of sustainable free cash flow generation and reduced leverage.
Comstock has over 1.1 Bcfe per day of net production, approximately 374,000 net acres and 5.4 Tcfe of SEC proved reserves and 7.6 Tcfe SPE proved reserves, 293,000 net Haynesville acres with approximately 2,000 net drilling locations, including approximately 1,300 net locations with lateral length over 5,000 feet.
The transaction was unanimously approved by both companies' boards of directors. Upon closing of the transaction, Comstock's Board of Directors will be expanded to include Covey Park's Co-CEO John Jacobi and Jordan Marye, a managing partner of Denham Capital.
The management team will be led by Comstock's current CEO M. Jay Allison but will include representation from both management teams and will combine the two companies' operating staffs to retain talent and achieve an efficient organisation.
At transaction closing Comstock will assume Covey Park's existing $625 million 7.5 per cent senior notes, retire amounts outstanding under Covey Park's credit facility, and redeem all outstanding previously issued Covey Park preferred units.
Covey Park's equity owners will receive $700 million in cash, $210 million of a newly issued perpetual convertible preferred stock and 28,833,000 shares of newly issued Comstock common stock at an agreed upon price of $6.00 per share.
Jerry Jones, will remain Comstock’s largest shareholder with 75 per cent ownership interest. He will invest an additional $475 million in cash for 50,000,000 of newly issued shares of Comstock common stock to be issued at an agreed upon price of $6.00 per share and $175 million of newly issued shares of perpetual convertible preferred stock. The additional equity investment brings Jerry Jones' total investment in Comstock to approximately $1.1 billion.
The total $385 million in newly issued preferred stock will have a quarterly cash dividend of 10 per cent per annum and can be converted into shares of common stock at a conversion price of $4.00 per share commencing one year from the issue date. The Company will have the right to redeem the preferred stock at any time at face value plus accrued dividends.
The transaction is expected to close on or before July 31, 2019, subject to the satisfaction of certain regulatory approvals and other customary closing conditions.