Did Rosetta Get Enough From Noble Energy?

May 11, 2015 by Paul Ausick

In what may be the first of many similar transactions, independent exploration and production (E&P) company Rosetta Resources Inc. (NASDAQ: ROSE) on Monday said it is being acquired by Noble Energy Inc. (NYSE: NBL) in an all-stock transaction valued at about $3.9 billion including $1.8 billion in Rosetta’s net debt.

Rosetta’s market cap as of Friday’s close was $1.45 billion, compared with Noble’s market cap of around $19 billion.

Rosetta’s shareholders will receive 0.542 of a share of Noble stock for each share of Rosetta stock they own. Based on the Noble Energy’s Friday closing price, the transaction has an implied value to Rosetta shareholders of $26.62 per share, representing a 28% premium to the average price of Rosetta stock over the past 30 trading days. Following the transaction, current Rosetta shareholders will own about 9.6% of Noble’s outstanding stock.

Rosetta’s assets include approximately 50,000 net acres in the Eagle Ford Shale and 56,000 net acres in the Permian (46,000 acres in the Delaware Basin and 10,000 acres in the Midland Basin). In the first quarter of this year, Rosetta produced 66,000 barrels of oil equivalent per day (of which about 60% was liquids), and the company’s proved reserves at the end of 2014 totaled 282 million barrels of oil equivalent.

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At the transaction price, Noble is paying about $13.80 per barrel of oil equivalent. In the largest acquisition so far this year, Royal Dutch Shell PLC (NYSE: RDS-B) paid about $21.50 per barrel of oil equivalent in its $70 billion acquisition of BG Group. That difference is greater than the spread between West Texas Intermediate (WTI) barrels and Brent barrels and probably reflects the financial position that Rosetta finds itself it, with net debt greater than its market cap.

An analyst at Oppenheimer told Reuters that the premium for Rosetta is “below average for the sector over the past five years.” The deal is a stake in the ground as the expected consolidation of E&P companies begins following the big drop in WTI crude oil prices. Future transactions, if any, are also likely to weigh heavily the amount of debt of the company being acquired.

Jim Craddock, CEO of Rosetta, said:

The deal will accelerate value delivery from our strong asset base, and the all-stock nature of the transaction will allow our shareholders to continue to reap that value growth across commodity price cycles.

Noble Energy’s CEO, Dave Stover, said:

The Eagle Ford and the Permian are premier unconventional resource plays, two of the most economic in the U.S., which will expand our resource base and development inventory and further diversify our portfolio. The transaction will be immediately accretive to our per share production, reserves, earnings, and cash flow.

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Rosetta’s shares traded up 29% early Monday to $24.93, after closing at $19.33 on Friday. The stock’s 52-week range is $15.92 to $55.45.

Noble Energy’s stock traded down about 4.6%, at $46.81 in a 52-week range of $41.01 to $79.63.