Ring Energy, Inc, announced that an agreement had been entered into to acquire assets of Stronghghold Energy II Operating, LLC. Likewise, the acquisition of Stronghold Energy II Royalties, LP is also being sought.
The operations of these companies are located across from Crane County, Texas. Its primary focus is the development of 37,000 net acres in the central Permian Basin (“CBP”) shelf. The majority is owned by a leading growth investor named Warburg Pincus.
As usual, the consideration for the Transaction is subject to the following closing adjustments:
1. $200.0 million in cash at closing. Payment presented in deferred cash of $15.0 million due six months after closing
2. $20.0 million of existing Stronghold coverage liability; Y
3. $230.0 million in Ring equity based on a 20-day volume weighted average price (“VWAP”) of $3.60 per common share as of June 30, 2022.
The statements made about Ring Energy’s purchase
The part that will be presented in cash for consideration will be financed mainly from loans. These are under a fully committed and revolving line of credit. An engagement will be made with Trust Securities, Citizens Bank, N.A., KeyBanc Capital Markets, and Mizuho Securities.
Mr. Paul D. McKinney, Chairman of the Board and Chief Executive Officer, commented. “We are excited to announce the agreement to acquire Stronghold’s conventional asset base. We expect will further diversify our commodity mix and provide increased optionality on multiple fronts upon closing.”
“The Transaction truly complements our existing footprint of conventional-focused Central Basin Platform and Northwest Shelf asset positions in the Permian Basin. Furthermore we intend to leverage our extensive expertise in applying the newest unconventional and conventional technologies to develop Stronghold’s deep inventory of investment opportunities optimally. We believe the Transaction will provide for a material increase in our size and scale.” he added.
He also said “More importantly, it will be immediately accretive across all critical operational and financial metrics for Ring’s existing stockholders. In closing, we expect to double our production, reserves nearly and forecasted free cash flow with assets we know well. We also hope to capture meaningful synergies from this acquisition.”
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“Once we complete the Transaction, Ring Energy will have materially increased our inventory of high rate-of-return drilling, completion, and workover projects, for instance. And we fully expect to increase our activity across our expanded footprint. With lower operating costs and a substantially expanded high-margin inventory, and also capital efficient development opportunities, we expect to increase free cash flow and our ability to pay down debt rapidly. This will allow us to expand through potential acquisitions or enhance stockholder returns through other potential return of capital opportunities.”