425: Arcadia Biosciences to Merge with Roosevelt Resources in All-Stock Deal, Shifting Focus to Oil and Gas

Arcadia Biosciences will combine with Roosevelt Resources in an all-stock transaction, marking a shift from agricultural innovation to oil and gas exploration and production.

Summary

• Arcadia Biosciences and Roosevelt Resources have agreed to merge in an all-stock transaction.
• Arcadia will issue shares to Roosevelt's partners in exchange for all equity interests in Roosevelt.
• Post-merger, Roosevelt's equity owners are expected to hold approximately 90% of the combined company, while existing Arcadia shareholders will own about 10%, subject to adjustments.
• Roosevelt Resources is a privately-held oil and gas exploration and production company based in Dallas, Texas.
• Roosevelt's primary asset is a carbon capture utilization and storage (CCUS) project in the Texas Permian Basin, spanning 16,208 acres.
• The project is expected to reach a peak production capacity of 55,000 gross barrels of oil equivalent per day (boepd) by 2051.
• Schlumberger estimates 956 million gross technically recoverable barrels of oil equivalent (boe) over the project's 70-year life.
• Roosevelt has invested over $82 million in the project to date.
• The company's internally prepared reserve report estimates proved undeveloped reserves of approximately 780 million gross boe and proved developed producing reserves of approximately 3.8 million gross boe as of September 30, 2024.
• Roosevelt plans to use horizontal drilling and CO2 injection for enhanced oil recovery.
• Development costs through 2025 are estimated at $125 million.
• The combined company will be managed by Roosevelt's current executive team, including Elliot Tony Roosevelt, Jr. as CEO.
• Arcadia will change its name to Roosevelt Resources, Inc. and is expected to trade under a new symbol.
• The transaction is expected to close in the first quarter of 2025, subject to approvals.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While the potential of the Roosevelt project is significant, the dilution for existing Arcadia shareholders and the long-term nature of the project temper the positive outlook. The shift in business focus also introduces uncertainty.

Positives

• The merger provides Arcadia shareholders with exposure to a potentially high-growth oil and gas project.
• Roosevelt's CCUS project has significant estimated recoverable resources.
• The project is strategically located near existing infrastructure in the Permian Basin.
• Roosevelt's management team has extensive experience in oil and gas development.
• The use of horizontal drilling and CO2 injection could lead to improved capital efficiency.
• The combined company will have a clear focus on oil and gas production.
• The transaction is expected to close relatively quickly, in the first quarter of 2025.

Negatives

• Arcadia shareholders will experience significant dilution, owning only about 10% of the combined company.
• The merger represents a major shift in business focus for Arcadia, moving away from agricultural innovation.
• The oil and gas industry is subject to price volatility and regulatory risks.
• The project's success depends on various factors, including development costs, capital expenditures, and oil and gas prices.
• The project's peak production is not expected until 2051, requiring a long-term investment horizon.
• The company will need to raise significant capital to fund the project's development.

Risks

• The transaction is subject to customary closing conditions and regulatory approvals, which may not be obtained.
• Arcadia stockholders may not approve the transaction.
• The combined company may face challenges in integrating the operations of Arcadia and Roosevelt.
• The oil and gas industry is subject to price volatility, which could impact the project's profitability.
• The project's development may be delayed or face cost overruns.
• The combined company may face challenges in securing long-term CO2 supply agreements.
• The combined company may face challenges in raising the necessary capital to fund the project's development.
• The combined company may face regulatory and environmental risks associated with oil and gas production.

Future Outlook

The combined company will focus on developing Roosevelt's CCUS project in the Permian Basin, with a goal of reaching peak production by 2051. The company anticipates that field total production will increase an average of approximately 4,000 gross boepd each year for the first ten years after CO2 response, reaching an anticipated rate exceeding 40,000 gross boepd and remaining greater than 40,000 gross boepd for over 30 years.

Management Comments

• T.J. Schaefer, president and CEO of Arcadia, stated that the business combination with Roosevelt Resources is the best alternative to create value for Arcadia and its shareholders.
• Elliott Tony Roosevelt, Jr., chairman and CEO of Roosevelt, stated that the company is positioned to execute on the promising project and that the business combination with Arcadia will position them to continue the next steps in the field development.

Industry Context

This merger reflects a trend of companies seeking to diversify their portfolios and capitalize on opportunities in the energy sector. Arcadia, previously focused on agricultural innovation, is shifting its focus to oil and gas, indicating a strategic pivot in response to market conditions and perceived growth potential. This move also highlights the increasing interest in carbon capture and enhanced oil recovery technologies.

Comparison to Industry Standards

• The estimated recoverable resources of 956 million boe are significant compared to other projects in the Permian Basin, but the actual recovery will depend on various factors.
• The planned peak production of 55,000 boepd is a substantial target, but it is not expected to be reached until 2051, which is a long-term horizon compared to other oil and gas projects.
• The use of horizontal drilling and CO2 injection is a common practice in the Permian Basin, but Roosevelt's application of the Miscible Ascending Dispersion (MAD) method is a unique approach that could lead to higher recovery rates.
• The estimated development costs of $125 million through 2025 are substantial, but they are in line with other large-scale oil and gas projects.
• The transaction structure, with Roosevelt's equity owners holding 90% of the combined company, is unusual and indicates the relative value of Roosevelt's assets compared to Arcadia's existing business.
• Comparible companies in the Permian Basin include publicly traded companies such as Pioneer Natural Resources (PXD), Diamondback Energy (FANG), and Devon Energy (DVN), which have established production and infrastructure in the region. Roosevelt's project is still in the development phase, and its success will depend on its ability to execute its development plan and secure necessary funding.

Management Changes

Stakeholder Impact

• Arcadia shareholders will experience significant dilution but gain exposure to a new business sector.
• Roosevelt's partners will become majority owners of the combined company.
• Employees of both companies may experience changes in their roles and responsibilities.
• Customers of Arcadia's existing business may see a shift in the company's focus.
• Suppliers and creditors of both companies may be affected by the merger.

Next Steps

• Arcadia will file a registration statement with the SEC.
• Arcadia will hold a special meeting of stockholders to approve the transaction.
• The companies will seek approval from Nasdaq for the continued listing of the combined company's shares.
• The companies will work to complete the transaction by the first quarter of 2025.

Key Dates

Keywords

merger, acquisition, oil and gas, carbon capture, CCUS, Permian Basin, Roosevelt Resources, Arcadia Biosciences, enhanced oil recovery, EOR, horizontal drilling, CO2 injection, energy, production, exploration