The Deal

Updates

November 9, 2021: pricing of those bonds -- a total of $1.6 billion --

  • 2.268% notes due 2026: $800 million
  • 2.875% notes due 2032: $800 million
  • compare with notes announced by NOG today at the very same time:
    • 8.125% due 2028: $200 million

November 9, 2021: I don't have a business background, so I don't think like these guys. But here's another great way of leveraging your assets. 

I got feedback from a reader regarding my "house" analogy (see below). It was another example of someone who doesn't live by Stephen Covey's seven habits, especially #5. LOL. Folks who own their own house know all about using their home as an ATM. LOL. So, here we go. If the deal goes through (and even if it doesn't, see note below), Harold Hamm has new assets valued at $3.2 billion. He now leverages that $3.2 billion and pays it off with really, really cheap money.  Cash flow will pay the principal and the interest and in the meantime, Harold Hamm as $3.2 billion with which to play.

November 9, 2021, link here

CLR intends to offer a series of senior notes due 2026 and a series of senior notes due 2032 in a private placement to eligible purchasers. 

Continental intends to use the net proceeds from the offering to fund a portion of the purchase price in the recently announced acquisition from Pioneer Natural Resources Company, the "Pioneer Acquisition," to pay the fees and expenses associated with the offering and, if the Pioneer Acquisition is not consummated, for general corporate purposes, which may include repayment of certain indebtedness.

Original Post

CLR website, presentations: link here

Over time, presentations "disappear." Advice: if this is important to you, download and save. You may want to do the same with some of the earlier updates.

Questions: several folks, including me over at twitter, did not quite understand exactly how many net acres CLR acquired in this deal. "Dallas" explains this in great detail

Presentations, link here. The deal is the November, 2021, Investor Update.

***********************************
Million Dollar Way Posts

November 4, 2021: where this story is followed at the MillionDollarWay (The Bakken Blog);

Poll: immediately following the announcement of the deal, a poll was posted -- assume for one minutes you were Harold Hamm: would you have entered the Permian the way he did?

  • Yes: 53%
  • No: 47%

***************************
Posts From Other Sites

Forbes, November 4, 2021. Archived.

***************************
Twitter Links

Casey Merriman, CLR been on the quiet acquisition front. Link here.

*************************
The Deal: An Alternative Method

CLR will pay for the deal with cash. No additional shares will be issued. No dilution.

However, let's see what it would have required if paid in CLR shares at current value.

CLR:

  • number of shares outstanding: 365 million
  • value of shares after deal announced: $45
  • $3.25 billion / $45 = 72 million shares
  • 72 / 265 = 20%.

It seems 10% has been about the usual amount of dilution in deals like this.

At 3.0% interest, borrowing the full amount would be almost $100 million on top of the principal. Thus, total new debt: $3.250 billion + $3.350 billion assuming I did the arithmetic correctly.

CLR currently has $4.8 billion in debt. 

Operating cash flow is in the neighborhood of $3 billion.

Levered free cash flow is in the neighborhood of $1.4 billion.

$1.4 / $3.350 = 0.42 (let's call it 0.40).

Definition of levered vs unlevered free cash flow here

It seems it would have been fairly easy to pay for this deal with a combination of stock and cash. All stock would have been painful but not impossible. 

The only way I can get my head around this with regard to cost of the deal and levered free cash flow is think about buying a house. Would I buy a $500,000 house if I had free cash of .... 0.4 x $500,000 = $200,000 and could pay off the house in 2.5 years?

Those numbers are all assuming everything "equal" with one possible exception: the price of oil may actually go up. Makes the deal even more attractive.

Now, throw in the understanding that the deal is immediately accretive, to what extent I don't know, but that would mean the deal could be paid off in less than 2.5 years.

No comments:

Post a Comment

All comments are heavily moderated.