[Context: On November 21, Riverstone and EnCap-backed Talos Energy announced a merger with Stone Energy that will give the PE sponsors majority ownership of a new public company. Further details, advisors and related links are below.]
Talos Energy LLC to Combine with Stone Energy Corporation
HOUSTON and LAFAYETTE, La., Nov. 21, 2017 /PRNewswire/ — Talos Energy LLC (“Talos”) and Stone Energy Corporation (NYSE: SGY; “Stone”) today announced that their Boards of Directors have unanimously approved the combination of Talos and Stone in an all-stock transaction that will create a premier offshore-focused exploration and production company. The company will be named Talos Energy, Inc. and is expected to trade on the New York Stock Exchange (“NYSE”) under the new ticker symbol “TALO.”
Highlights of the combined company will include:
>> Pro forma estimated 2017 average daily production of approximately 47 thousand barrels of oil equivalent (Mboe/d);
>> Pro forma proved reserves of 136 million barrels of oil equivalent (MMboe) as of June 30, 2017 based on SEC pricing, which are 69% oil and 74% located in the Deepwater Gulf of Mexico;
>> Two recent discoveries, Tornado II and Rampart, provide near-term opportunities for growth;
>> Long-term growth profile, underscored by the historic, world-class Zama oil discovery in the shallow waters of Mexico; and
>> Strong pro forma balance sheet and credit profile, highlighted by low leverage and ample liquidity.
Under the terms of the transaction, each outstanding share of Stone common stock will be exchanged for one share of Talos Energy, Inc. common stock and the current Talos stakeholders will be issued an aggregate of approximately 34.2 million common shares. At closing, Talos stakeholders will own 63% of the combined company, with Stone shareholders owning the remaining 37%. Based on Stone’s stock price of $35.49 on November 20, 2017 and the terms of the proposed transaction, Talos Energy, Inc. will have an initial equity market capitalization of approximately $1.9 billion and an enterprise value of approximately $2.5 billion.
“This combination represents an important step in our goal of becoming the premier offshore exploration and production (“E&P”) company. We will have two core areas in the Deepwater U.S. Gulf of Mexico Deepwater and the outstanding new Zama discovery located in the shallow waters of offshore Mexico,” stated Timothy S. Duncan, Talos’s Chief Executive Officer. “The combined talent, technical resources and balance sheet of the resulting company will allow us to accelerate development of our own robust project inventory while also giving us the horsepower to pursue compelling transactional and exploration opportunities. We fully expect to achieve material operating synergies and maximize capital efficiency going forward. This transaction is a tremendous opportunity for both Talos and Stone as we create a Gulf of Mexico frontrunner.”
Neal P. Goldman, Stone’s Chairman, stated, “This transaction represents the successful culmination of Stone’s previously announced strategic review process and is a compelling opportunity for our shareholders to benefit from the significant upside and synergies of the combined company. Talos Energy, Inc. will have substantial scale, important asset diversification and a talented management team, along with the strong financial position to continue to grow value for our combined shareholder base. I am very proud of Stone’s success in growing shareholder value since its financial restructuring in February 2017 and I am confident Tim will lead the combined company to even greater success.”
James M. Trimble, Stone’s Interim Chief Executive Officer and President, stated, “I want to thank our employees for their focus and dedication in positioning Stone for this important transaction. The team’s management of Stone’s assets and business in a safe and environmentally responsible manner will continue our success for the combined shareholder base. The combined company will be strategically positioned to drive meaningful production growth through complementary acreage positions. We look forward to this partnership with Tim and the Talos team.”
Combination Benefits and Pro Forma Position
The combination will create a leading offshore independent E&P company and a leader in the Gulf of Mexico with a large, high quality asset base and leading cost profile. The combined company will have estimated 2017 average daily production of approximately 47 Mboe and proved reserves of 136 MMboe as of June 30, 2017 based on SEC prices.
The combined company will also benefit from a deep inventory of identified exploration and development prospects and a significant acreage footprint in the Gulf of Mexico, including over 1.2 million combined gross acres, of which approximately 160,000 acres is offshore Mexico. The Zama oil discovery, operated by Talos, was the first private sector offshore exploration well in the history of Mexico and was previously disclosed as having between 1.4 billion and 2.0 billion gross barrels of original oil in place. Additionally, the combined company expects to achieve up to $25 million in annual pre-tax synergies from supply chain management and other operational efficiencies by year end 2018.
The new company will have increased financial flexibility, in part through its expected new $1 billion credit facility with an expected $600 million in initial borrowing capacity, and no material long term note maturities until 2022. Upon closing, the combined company’s pro forma unrestricted cash, undrawn credit facility and ability to access public capital markets will provide flexibility to pursue additional attractive growth opportunities. The combined company is expected to have a pro forma net debt-to-2017E EBITDA ratio of 1.4x and approximately $325 million to $375 million in liquidity at closing. Talos Energy, Inc. will be well-positioned as the counterparty of choice for drilling and consolidation opportunities in the Deepwater Gulf of Mexico.
Under the terms of the definitive agreement, Talos and Stone will both become wholly-owned subsidiaries of a new holding company, which at closing will become a publicly traded entity. The new, combined company will be named Talos Energy, Inc. and is expected to trade on the NYSE under the new ticker symbol “TALO.” At closing, Talos stakeholders will own 63% and Stone shareholders will own 37% of the combined company. Outstanding warrants to acquire Stone common stock will become warrants to acquire Talos Energy, Inc. common stock with terms and conditions substantially identical to their existing terms and conditions.
Leadership and Corporate Governance
Timothy S. Duncan, Talos’s Chief Executive Officer, will be Chief Executive Officer of Talos Energy, Inc. with additional members of current Talos and Stone management serving in other key leadership roles.
The combined company’s Board of Directors will be comprised of ten members, including six members designated by Talos and four members designated by Stone from its current Board of Directors. Neal P. Goldman will serve as Non-Executive Chairman of the Board of Directors.
Talos Energy, Inc. will be headquartered in Houston, with additional offices in Lafayette and New Orleans.
Approvals and Shareholder Agreements
Completion of the transaction is subject to the approval of Stone shareholders, consent of a majority of the unaffiliated holders of Stone’s 7.50% Senior Secured Notes due 2022 and successful completion of an exchange of the Stone notes for Talos notes, certain regulatory approvals and other customary conditions.
Franklin Advisers, Inc. and MacKay Shields LLC, as investment managers for approximately 53% of the outstanding shares of Stone as of September 30, 2017, have entered into voting agreements to vote in favor of the transaction, subject to certain conditions.
The transaction is expected to close in late first quarter or early in the second quarter of 2018.
Citigroup acted as lead financial advisor and UBS Investment Bank as financial advisor to Talos in the transaction. Vinson & Elkins LLP and Paul, Weiss, Rifkind, Wharton & Garrison LLP acted as legal counsel to Talos.
Petrie Partners Securities, LLC acted as financial advisor to Stone in the transaction and Akin Gump Strauss Hauer & Feld LLP acted as legal counsel to Stone.
About Talos Energy LLC
Talos Energy LLC is a technically driven, independent oil and gas exploration and production company with operations in the United States Gulf of Mexico and in the shallow waters off the coast of Mexico. Talos’s expertise in the United States Gulf of Mexico is based on exploring, acquiring, exploiting and developing primarily Deepwater assets near existing infrastructure. The shallow waters off the coast of Mexico provide Talos with high impact exploration opportunities in an emerging basin.
About Stone Energy Corporation
Stone Energy Corporation is an independent oil and natural gas exploration and production company headquartered in Lafayette, Louisiana with an additional office in New Orleans. Stone is engaged in the acquisition, exploration, development, and production of properties in the Gulf of Mexico basin.
Proved Reserve Data
The proved reserves, as of June 30, 2017, have been prepared on the same basis as the proved reserves for year end 2016 for each of Talos and Stone that were audited or prepared by an independent engineering firm, but the proved reserves as of June 30, 2017 for each of Talos and Stone are based on company-engineered reserve reports of Talos and Stone, respectively, calculated in accordance with SEC rules and regulations that have not been audited by an independent engineering firm.