8-K: Atlas Energy Solutions to Acquire Hi-Crush, Forming North America's Largest Proppant Producer

Atlas Energy Solutions Inc. has agreed to acquire Hi-Crush Inc.'s Permian Basin proppant assets and logistics operations for $450 million, creating the largest proppant producer in North America.

Summary

• Atlas Energy Solutions Inc. (Atlas) will acquire Hi-Crush Inc.'s Permian Basin proppant production assets and North American logistics operations for $450 million.
• The transaction includes $150 million in upfront cash, $175 million in Atlas common stock, and a $125 million secured seller note.
• The combined company will have a pro forma production capacity of approximately 28 million tons per year, with about 80% of 2024 production capacity contracted.
• The acquired assets are expected to contribute $110-125 million in Adjusted EBITDA in 2024, with a full run-rate valuation of approximately 3x 2024 Adjusted EBITDA.
• The acquisition is expected to be immediately double-digit accretive to cash flow per share (CFPS) and earnings per share (EPS).
• Atlas anticipates realizing more than $20 million in annual synergies by 2026.
• The transaction is expected to close before the end of the first quarter of 2024.

Sentiment

Score: 9

Explanation: The document is highly positive, emphasizing the strategic fit, scale, and financial benefits of the acquisition. The language used is optimistic and confident, suggesting a strong outlook for the combined company.

Positives

• The combination creates a premier portfolio of Permian proppant production assets with unmatched scale.
• The acquisition expands Atlass leading Permian proppant acreage position to ~45,365 acres.
• The combination increases Atlass control of available Permian tier-one giant-open dune sand resources to ~85%.
• OnCore adds ~7mmtpy of distributed mining assets producing damp sand to Atlass leading dry sand portfolio.
• The acquisition improves Atlass geographic profile, increasing the percentage of Permian rigs within 50 miles of an Atlas facility from 59% to 89%.
• The transaction is expected to accelerate free cash flow and expand capacity for shareholder returns.

Risks

• The completion of the transaction is subject to customary closing conditions, including regulatory approvals.
• There are uncertainties as to whether the transaction will achieve its anticipated benefits and synergies within the expected time period or at all.
• Atlas faces risks related to integrating Hi-Crushs operations, potential litigation, and unforeseen liabilities.
• The transaction is subject to commodity price volatility, geopolitical conflicts, and adverse developments in the financial services industry.
• Atlas faces risks related to completing growth projects on time and on budget, and potential stockholder litigation.

Future Outlook

Atlas expects to operate at 85% to 90% utilization going forward, with sand prices averaging $26-$28 per ton in 2024. The company anticipates 2024 Adjusted EBITDA to range between $425 to $475 million, with total capex between $335 and $360 million.

Management Comments

• Bud Brigham, Executive Chairman and CEO of Atlas, stated that the combination of Atlas and Hi-Crush is a great day for both organizations and that combining the teams, technologies, and best practices should benefit shareholders.
• John Turner, President and CFO of Atlas, noted that both companies have invested significantly in their proppant and logistics businesses to drive efficiency gains for customers.
• Dirk Hallen, CEO of Hi-Crush, expressed pride in his team's accomplishments and excitement in uniting with Atlas.
• Colin Leonard, Hi-Crush Board Chairman and Partner at Clearlake Capital Group L.P., stated that the transaction represents an important milestone for Hi-Crush after a strategic transformation.

Industry Context

This acquisition reflects a trend of consolidation in the proppant industry, with companies seeking to achieve greater scale and efficiency. The combination of Atlas and Hi-Crush creates a dominant player in the Permian Basin, a key region for oil and gas production.

Comparison to Industry Standards

• The combined company will have a pro forma production capacity of approximately 28 million tons per year, making it the largest proppant producer in North America, surpassing competitors such as U.S. Silica and Fairmount Santrol.
• The acquisition of Hi-Crushs OnCore distributed mining assets provides Atlas with a unique advantage in the Midland Basin, complementing its existing strength in the Delaware Basin with the Dune Express.
• The expected Adjusted EBITDA of $110-125 million from the acquired assets in 2024, with a full run-rate valuation of approximately 3x 2024 Adjusted EBITDA, suggests a strong financial outlook compared to industry averages.
• The projected synergies of more than $20 million annually by 2026 indicate a focus on operational efficiency, which is a key differentiator in the proppant industry.

Stakeholder Impact

• Shareholders are expected to benefit from increased free cash flow, earnings per share, and potential shareholder returns.
• Employees of both Atlas and Hi-Crush are expected to be integrated into the combined organization.
• Customers are expected to benefit from a broader range of proppant and logistics solutions.
• The transaction is expected to create a more efficient and reliable supply chain for the oil and gas industry.

Next Steps

• The transaction is expected to close before the end of the first quarter of 2024.
• Atlas will begin to include Hi-Crushs financial results in its financial results from March 1, 2024 onwards.
• Atlas will continue to invest to drive innovation and efficiencies at the well site.

Key Dates

Keywords

proppant, logistics, Permian Basin, frac sand, acquisition, Atlas Energy Solutions, Hi-Crush, synergies, production capacity, Dune Express, OnCore, Pronghorn