Why Oil & Gas Exploration Company Enerplus Shares Are Surging Premarket Today

Enerplus Corporation ERF shares are trading higher after it inked a definitive merger deal with Chord Energy Corporation CHRD in an approximately $11 billion stock and cash transaction.

As per the terms, each Enerplus share will be exchanged for 0.10125 shares of Chord and $1.84 per share in cash, representing 90% stock and 10% cash consideration. 

After deal closure, Chord shareholders will own about 67% of the combined company and Enerplus the remaining 33% on a fully diluted basis. 

The combined company’s enterprise value is projected to be around $11 billion, inclusive of Enerplus’ net debt, based on the transaction exchange ratio, and the closing share prices for both companies as of February 20, 2024. 

The combined company is projected to have a premier Williston Basin position with deep, low-cost inventory, about 1.3 million net acres and combined fourth-quarter FY23 production of 287 MBoepd.

Synergies: The combined company anticipates benefiting from administrative, capital, and operating synergies of up to $150 million annually, with administrative synergies expected to begin in 2024 and increase in 2025 up to $40 million. 

The companies see capital synergies increasing up to $55 million in 2025, and operating synergies to be initiated in 2025 and expected to increase up to $55 million in 2026.

The after-tax present value of synergies is targeted to exceed $750 million. Moreover, the combined company is expected to generate about $1.2 billion of free cash flow with a reinvestment rate of around 51% in 2024 at $79/bbl WTI and $2.50/MMBtu NYMEX gas.

The transaction, which has been unanimously approved by the boards of directors of both companies, is expected to close by mid-year 2024. 

Yesterday, Enerplus reported fourth-quarter EPS of $0.55, beating the consensus of $0.51. Also, Chord Energy reported fourth-quarter adjusted EPS of $5.25, surpassing the consensus of $4.97.

Price Action: ERF shares are up 10.17% at $18.09, while CHRD is down 2.36% at $164 during premarket on the last check Thursday.

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