Denver oil, gas producers Bonanza Creek and HighPoint Resources announce $376M merger
Transaction between Denver-Julesburg operators expected to save $31M, increase cash flow
Bonanza Creek Energy and HighPoint Resources Corp. announced a merger Monday that is worth $376 million and will create a company with about 206,000 acres of leases in the Denver-Julesburg Basin and a daily production equivalent to 50,000 barrels of oil.
The two Denver companies said in a statement that the transaction will significantly increase their free cash flow and economic resilience. The value of the deal, unanimously approved by the boards of both companies, is based on the equity to be issued to HighPoint equity holders, the equity and debt to be issued to HighPoint debt holders and the remaining debt to be assumed.
Bonanza Creek said it will issue 9.8 million shares of common stock and up to $100 million in senior unsecured notes as part of the transaction. The merger is expected to result in approximately $31 million in savings in 2021 and increase cash flow to $130 million.
“Like the larger upstream corporate deals this year, the $376 million combination of Bonanza Creek and HighPoint is based around building scale to create a company that can sustainably deliver on free cash flow,” Andrew Dittmar, senior mergers and acquisitions analyst for Enverus, said in an email.
Debt has been an obstacle for mergers of exploration and production companies, and the deal struck between HighPoint and Bonanza Creek is one option around that, Dittmar said.
“With buyout offers from larger companies unlikely in this segment of the market, combinations between the small producers are likely the best path forward. Some may also seek an infusion of private capital,” Dittmar added. “Whichever route they choose, addressing debt loads will be critical along with working to lower operating costs and reinvestment rates.”
Founded in 1999, Bonanza Creek Energy is focused on the Wattenberg Field in the D-J Basin. HighPoint Resources was formed in 2018 when Bill Barrett Corp. and Fifth Creek Energy merged.