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$465 Million for Stronghold Energy; Ring Energy Completes the Acquisition

On August 31 Ring Energy Inc. purchased privately-held Stronghold Energy, adding operations which are mainly situated in Crane County, Texas, in the Permian Basin’s Central Basin Platform.

According to a September 1 Ring Energy release, this transaction fully complements the conventional-focused Central Basin Platform and Northwest Shelf asset positions in the Permian Basin.

The majority owned by Warburg Pincus LLC, Stronghold’s operations are concentrated on the development of about 37,000 net acres situated mainly in Crane County. The company was established in 2017 by father and son duo Steve and Caleb Weatherl.

In July Ring Energy entered into an agreement to buy Stronghold Energy II Operating LLC and Stronghold Energy II Royalties LP for $200 million in cash at closing and $230 million in Ring equity based on a 20-day volume weighted average price. Consideration also involved a $15 million deferred cash payment due six months after closing and $20 million of existing Stronghold hedge liability increasing the total transaction value to $465 million.

The cash portion of the consideration was funded mainly from borrowings under a new fully committed revolving credit facility endorsed by Truist Securities, Citizens Bank NA, KeyBanc Capital Markets, and Mizuho Securities.

Stronghold’s asset base is almost 99% operated, 99% working interest, and 99% HBP. In July, Ring announced the current net production of Stronghold’s asset base was approximately 9,100 boe/d (54% oil, 75% liquids).

McKinney shared that the acquisition further spreads out Ring Energy’s commodity mix, essentially improving the company’s size and scale and lowering its per barrel operating costs while also bringing meaningful synergies and raising operations optionality on multiple fronts.

The merger of lower per barrel operating costs and a considerably extended inventory of high-margin, capital-efficient development opportunities is anticipated to raise free cash flow, hastening the rate at which the company pays down debt, and improves the leverage metrics.

Thanks to this, the company holds a much stronger position to expand through supplementary acquisitions or enlarge stockholder returns through the potential return of capital opportunities in the future.

All Stronghold’s owners now are Ring’s largest stockholders, according to the release. Ring’s board of directors has been extended from seven to nine directors, adding two members proposed by Stronghold.

The effective date of the transaction was June 1. Raymond James and Truist Securities are financial advisers to Ring, and Piper Sandler & Co. is financial adviser to Stronghold for the transaction. Mizuho Securities compiled a fairness opinion for Ring’s board. Jones & Keller, P.C. provided legal counsel to Ring and Kirkland & Ellis LLP provided legal counsel to Stronghold.

On the Central Basin Platform, Ring Energy, Inc. is targeting the San Andres formation. The San Andres is a high oil-saturated “conventional shallow non-contiguous carbonate reservoir” at approximately 5,000’ and is primarily an oil-bearing formation (approximately 96% oil) that has been drilled and produced for over 90 years. Of the over 30 billion barrels produced from the Permian Basin approximately 40%, or 12 billion barrels, came from the San Andres reservoir.

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Significant Growth of MPLX; Pipeline Throughput Raised by 6%

According to a midstream oil and natural gas company release on August 2, MPLXLP has increased total pipeline throughputs by 6% in the second quarter of 2022 and terminal throughput by 4%, versus year-ago levels. In an earnings statement of MPLX, the total pipeline throughputs were 5.9 million bbl/d, with terminal throughput of 3.1 million bbl/d for the second quarter. The company reported a net income of $875 million and adjusted earnings of $1.457 million in the second quarter, both higher than in the same period of 2021. Gathered volumes grew up by 11% from year-ago levels to an average of 5.6 Bcf/d. In the Marcellusregion, gathered volumes fell 1% compared to year-ago levels to an average of 1.3 Bcf/d. MPLX is expanding several projects, including in the Permian Basin where the Whistler pipeline is increasing from 2 Bcf/d to 2.5 Bcf/d, in addition to lateral pipelines into the Midland Basin and Corpus Christi domestic and export markets. Moreover, the construction is also maintained on the 200 MMcf/d Tornado ll processing plant, which MPLX anticipates coming online in the second half of 2022. Additionally, 68,000 bbl/d Smithburg de-ethanizer project in the Marcellus is expected to come online in the third quarter.

Kinder Morgan Inc. decided to sell half of its 51% interest in an LNG facility in Georgia on September 27 with proceeds allocated by the Houston-based company to pay short-term debt and buy back shares. As it is acknowledged, an undisclosed financial buyer purchases the 25.5% equity interest in Elba Liquefaction Co. LLC (ELC) for approximately $565 million. ELC is a joint venture (JV) established in 2017 to build and own the Elba liquefaction facility situated on #Elba Island in Chatham County, Georgia. After completion, Kinder Morgan and the undisclosed financial buyer will each hold a 25.5% stake in ELC. Meanwhile, Blackstone Credit will continue to hold a 49% interest. The value of the equity interest considers an enterprise value of almost $2.3 billion for ELC, which is about 13 times 2022E EBITDA. The transaction has an economic effective date of July 1. The Elba liquefaction facility has 10 modular liquefaction units for a total capacity of roughly 2.5 million tonnes per year of LNG. Kinder Morgan considers it equivalent to almost 350 MMcf/d of natural gas.

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