Noble Energy Buys Crosstown Rival Rosetta Resources for $3.9B

NEW YORK (The Deal) -- In the first of what's expected to be a wave of corporate mergers in the U.S. after the slide in oil prices, Houston oil and gas explorer Noble Energy (NBLsaid Monday it agreed to buy Rosetta Resources (ROSE), also of Houston, for $3.9 billion.

The deal will expand Noble's reach into the prolific Permian and Eagle Ford basins in Texas.

The price includes $2.1 billion in stock and $1.8 billion in net debt as of March 31. Rosetta shareholders will get 0.542 of a share of Noble stock for each share they own, or about $26.62 per share, a 37.7% premium over its closing price Friday and a 28% premium over its average price over the last 30 trading days. Rosetta shareholders will end up with 9.6% of Noble's outstanding stock.

Noble Chairman, CEO and President Dave Stover said in a statement that the transaction immediately adds to the company's per-share production, reserves, earnings and cash flow and that the strengths of the combined assets and people "will drive significant value creation for our existing and new shareholders."

Rosetta Chairman, CEO and President Jim Craddock said in his statement that the deal will accelerate "value delivery" from its asset base while allowing its shareholders to "reap that value growth" across commodity price cycles. |

"I am confident the combined team, strong balance sheet and premier asset base is poised for further success and shareholder value creation," he said.

Rosetta's assets cover 50,000 net acres in the Eagle Ford Shale and 56,000 net acres in the Permian, including 46,000 acres in the Delaware Basin and 10,000 acres in the Midland Basin. The assets produced 66,000 barrels of oil equivalent per day in the first quarter, 60% of which are liquids, and had 2014 reserves of 282 million barrels of oil equivalent at the end of last year.

Noble has identified 1,800 gross horizontal drilling locations for development, which it said provides net unrisked resource potential of 1 billion barrels of oil equivalent. It expects a 15% compounded annual production growth rate from the assets over the next several years.

Regulators and Rosetta shareholders must approve the deal, which is expected to close in the third quarter.

Analysts at Tudor, Pickering, Holt said in a note that they liked the deal, as Noble gets valuable properties on the cheap (the firm had a price target for Rosetta of $36, vs. $23 for analysts in general) and Rosetta will benefit from scale and balance-sheet strength to bring forward the value of its deep inventory, particularly in the Delaware basin. They said Noble is buying Rosetta at a long-term price deck of $80 per barrel of oil (at WTI, or West Texas Intermediate, pricing) and $4 per thousand cubic feet equivalent of natural gas (at Henry Hub pricing).

Observers have expected corporate deals in the oil and gas industry to pick up as buyers look to pick up valuable assets after last fall's slide in oil prices created a host of distressed sellers.

The Deal tagged Rosetta as a possible target at the end of December based on a report by Topeka Capital Markets analyst Gabriele Sorbara, who said Rosetta was among several low costs producers but would require a significant premium over its depressed stock price. (The others he mentioned were Diamondback Energy (FANG), Laredo Petroleum (LPI), Magnum Hunter Resources (MHR) and Oasis Petroleum (OAS).)

Rosetta's shares dipped below $20 per share last week, vs. more than $50 last summer before oil prices fell (it traded as low as $16.61 in January).

Sorbara said based on his estimates, Rosetta sold at 8.3 times next year's EBITDA, 5.7% above its peers, and 8.5 times 2016's EBITDA, 7.1% above its peers.

Noble has been doing some portfolio shuffling through the maelstrom. Earlier this month, it sold 38,500 net acres in Colorado's Boulder County to an undisclosed buyer for $120 million. And in April it picked up a 75% interest in some properties in the North Falkland Basin from Argos Resources  for an undisclosed sum, giving it operatorship. Analysts have said that Noble boosted its balance sheet flexibility after raising $1 billion in an equity offering in the first quarter.

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