Stone Energy Corp. in Lafayette is being acquired by Houston-based Talos Energy LLC in a $2 billion merger after a tumultuous period for Stone that included a bankruptcy reorganization.
Like many in the energy industry, Stone's fortunes plummeted along with the price of oil. The company reported losses of $189.5 million in 2014, $1.1 billion in 2015 and $590.6 million in 2016. But most of those losses were on paper, as low prices forced Stone to write down the value of its holdings.
Stone Energy recently wrapped up a prepackaged bankruptcy plan that kept the company operating and wiped out $1.2 billion in debt. It also had hired Petrie Partners LLC to help determine the company's "strategic direction" — often a signal of an eventual selling of a company.
Talos and Stone will become subsidiaries of a new holding company, Talos Energy Inc., with its headquarters in Houston and additional offices in Lafayette and New Orleans.
The merger is targeted for completion in second-quarter 2018. The company's stock is expected to trade on the New York Stock Exchange under the ticker symbol TALO.
The boards of directors of both companies unanimously approved the combination in an all-stock transaction. At closing, Talos stakeholders will own 63 percent of the combined company, with Stone shareholders owning the remaining 37 percent. Based on Stone's stock price of $35.49 on Nov. 20 and the terms of the proposed transaction, Talos Energy Inc. will have an initial equity market capitalization of about $1.9 billion and enterprise value of about $2.5 billion.
"Stone has done an herculean job trying to stay alive during the worst oil patch downturn in history. This probably the best deal available for shareholders," said Peter Ricchiuti, a finance professor at Tulane University who tracks regional stocks across the South through the university's Burkenroad Reports. "Talos is backed by some big private equity players and together they have more stability when/if things get better in the Gulf of Mexico," he said.
"Frankly, there will need to be more consolidations/cost savings/synergies in energy companies in order to survive through this period," Ricchiuti said. "Shareholders have made a positive return in Stone Energy over the past year, but when you factor in the reverse stock-splits the stock has lost almost 99 percent of its value since oil prices began plummeting in the fall of 2014."
Talos CEO Timothy S. Duncan will be the chief executive officer of Talos Energy Inc., with additional members of current Talos and Stone management serving in other key leadership roles.
"This combination represents an important step in our goal of becoming the premier offshore exploration and production company," Duncan said. "This transaction is a tremendous opportunity for both Talos and Stone as we create a Gulf of Mexico front-runner."
The new company will have increased financial flexibility, in part through its expected new $1 billion credit arrangement with an expected $600 million in initial borrowing capacity, and no material long-term note maturities until 2022, officials said.
Officials said the combined company expects to achieve up to $25 million in annual pre-tax savings from supply chain management and other operational efficiencies from the merger by the end of 2018.
The combined company's board will be comprised of 10 members, including six designated by Talos and four by Stone from its current board of directors. Neal P. Goldman will serve as non-executive chairman of the board of directors.
In mid-2014, Stone sold its noncore Gulf of Mexico shallow-water properties to Talos Energy Offshore LLC for $200 million in cash. At the time, Stone officials said the sale would allow Stone to focus on its deepwater properties in the Gulf of Mexico and other properties.
The combined company will have estimated 2017 average daily production of 47,000 barrels of oil equivalents and proved reserves of 136 million barrels of oil equivalents as of June 30.
Officials said it also has a deep inventory of exploration and development prospects and a significant acreage footprint in the Gulf of Mexico, including over 1.2 million combined gross acres, of which about 160,000 acres is offshore Mexico. The Zama oil discovery, operated by Talos, was the first private-sector offshore exploration well in the history of Mexico and was previously disclosed as having between 1.4 billion and 2.0 billion gross barrels of original oil in place.
"The combined company will be strategically positioned to drive meaningful production growth through complementary acreage positions," said James M. Trimble, Stone's interim chief executive officer and president.