Chord Energy Corporation (CHRD), a U.S. oil and gas producer, signed an agreement to acquire Calgary-based Enerplus Corporation (ERF) in a stock-and-cash transaction. The combined entity — with an enterprise value of approximately $11 billion — will acquire a premier position in the Williston basin. This basin has approximately 1.3 million net acres in area and registered a production of 287,000 barrels of oil equivalent per day in the fourth quarter of 2023. After the merger, the new company will be able to generate enhanced cash flows to support increased shareholder returns.

Details of the Deal

Per the terms of the agreement, Enerplus shareholders will receive 0.10125 shares of Chord Energy common stock and $1.84 per share in cash, representing 90% stock and 10% cash consideration in exchange for every Enerplus share owned at closing as of Feb 20, 2024. Chord Energy will also issue approximately 20.7 million shares of common stock as stock consideration to Enerplus shareholders as part of the transaction. Post completion of the deal, 67% of the combined company will be owned by Chord Energy shareholders while Enerplus shareholders will own the rest.

Synergies

The combined company will boast a deep, low-cost and high-quality inventory. The enhanced inventory position will allow the firm to increase its sub $60 WTI breakeven inventory by more than 60%, resulting in improved returns and free cashflows through various economic cycles. At the current pace, the inventory will be able to support approximately 10 years of development on a pro-forma basis.

The transaction is anticipated to be accretive to key financial metrics, including cash flow per share, free cash flow per share, net asset value and return of capital. The merged company is also expected to have improved credit profile and cost of capital. Upon closure, the company is expected to have a strong balance sheet with approximately 0.2x leverage.

After the transaction closes, the combined company is anticipated to achieve administrative, capital and operating synergies, adding up to $150 million per year. Administrative synergies are expected to initiate immediately in 2024 and increase up to $40 million in 2025. Capital synergies are expected to increase up to $55 million during 2025 and operating synergies are anticipated to rise up to $55 million in 2026. The companies mentioned that the after-tax present value may exceed $750 million.

Enhance Cash Flow

The merged company aims to generate significant free cash flow from its combined portfolio of low-cost assets by increasing efficiency and disciplined allocation of capital. The combined company has projected free cash flows of approximately $1.2 billion with a reinvestment rate of 51% in 2024.  Upon closing the transaction, Chord Energy intends to maintain its peer-leading capital return framework, under which more than 75% of the free cash flow is returned to shareholders through base and variable dividends and share repurchases.