425: Crescent Energy Announces $750 Million Senior Notes Offering to Fund SilverBow Merger

Crescent Energy Finance LLC, a subsidiary of Crescent Energy Company, plans to offer $750 million in senior notes due 2033 to fund the cash portion of its merger with SilverBow Resources and repay SilverBow's existing debt.

Summary

• Crescent Energy Finance LLC, a subsidiary of Crescent Energy Company, intends to offer $750 million in aggregate principal amount of Senior Notes due 2033 in a private placement.
• The notes will be guaranteed on a senior unsecured basis by all of the Issuer's subsidiaries that guarantee the Issuer's existing notes and the indebtedness under its revolving credit facility.
• The net proceeds from the offering will be used to fund the cash portion of the consideration for the merger with SilverBow Resources, Inc. and to repay SilverBow's existing indebtedness.
• Pending specific application, a portion of the net proceeds may be used to repay amounts outstanding under the revolving credit facility.
• If the SilverBow merger is not completed by May 22, 2025, or if the merger agreement is terminated or amended adversely, Crescent will be required to redeem all outstanding notes at 100% of the initial issue price plus accrued and unpaid interest.
• As of May 31, 2024, Crescent Energy's derivative portfolio had an aggregate notional value of approximately $1.5 billion.
• As of May 31, 2024, SilverBow's derivative portfolio had an aggregate notional value of approximately $1.4 billion.
• As of December 31, 2023, Crescent's net proved reserves were 577,159 MBoe, while SilverBow's were 450,604 MBoe, totaling 1,027,763 MBoe on a combined basis using NYMEX pricing.
• The PV-0 for Crescent's reserves was $8,216 million, and for SilverBow's, it was $6,105 million, totaling $14,321 million.
• The PV-10 for Crescent's reserves was $4,924 million, and for SilverBow's, it was $2,851 million, totaling $7,775 million.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive. The announcement outlines a strategic financing plan to support a significant merger, which is generally viewed favorably. However, the inherent risks associated with debt financing and merger integration temper the overall sentiment.

Positives

• The notes offering provides financing for a strategic merger with SilverBow Resources.
• The merger is expected to create a larger, more diversified energy company.
• Active hedging strategy mitigates near-term price volatility.
• The use of forward prices provides investors with additional useful information about reserves.

Negatives

• The notes offering increases Crescent Energy's debt load.
• The merger is subject to regulatory and shareholder approvals, creating uncertainty.
• If the merger fails, the notes will be redeemed, potentially impacting Crescent's financial flexibility.
• The reserve estimates using NYMEX pricing have not been prepared or audited by an independent, third-party reserve engineer.

Risks

• Market conditions could impact the success of the notes offering.
• Failure to complete the SilverBow merger by the Outside Date would trigger a mandatory redemption of the notes.
• Regulatory or shareholder disapproval could prevent the merger from closing.
• Integration of SilverBow's operations could be more challenging than anticipated.
• Commodity price volatility could impact the value of Crescent's and SilverBow's reserves.
• The forward-looking statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control.

Future Outlook

Crescent Energy intends to complete the merger with SilverBow Resources and integrate their operations. The company will continue to actively manage its hedging strategy to mitigate price volatility. The combined company expects to achieve synergies and operate more effectively and efficiently.

Industry Context

The announcement reflects ongoing consolidation trends in the energy sector, with companies seeking to increase scale and diversify their asset base. The notes offering is a common financing strategy for funding large acquisitions in the industry. The use of NYMEX pricing for reserve estimates is an alternative method to SEC pricing, providing investors with additional information about the fair value of assets.

Comparison to Industry Standards

• The use of NYMEX pricing for reserve estimates is a common practice among oil and gas companies to provide a more current market valuation compared to SEC pricing, which relies on historical averages.
• Companies like EQT Corporation and Southwestern Energy also actively hedge their production to manage price volatility, similar to Crescent's strategy.
• The PV-10 metric is widely used in the industry to compare the relative value of proved reserves among different companies, although it does not represent fair market value.
• The size of the notes offering is comparable to other debt financings used to fund acquisitions in the energy sector, such as those by APA Corporation and Devon Energy.

Stakeholder Impact

• Shareholders: Potential for increased value through merger synergies, but also increased risk due to higher debt levels.
• Employees: Potential for job displacement or new opportunities depending on integration plans.
• Customers: Expect continued service and potentially expanded offerings.
• Suppliers: Continued business relationships with a larger combined entity.
• Creditors: Increased debt burden for Crescent Energy, but also a larger asset base.

Next Steps

• Complete the private placement of the senior notes.
• Obtain regulatory and shareholder approvals for the SilverBow merger.
• Close the merger transaction with SilverBow Resources.
• Integrate SilverBow's operations into Crescent Energy.
• Repay SilverBow's existing indebtedness.
• Monitor commodity prices and adjust hedging strategy as needed.

Key Dates