HighPoint Resources Corp (NYSE: HPR) is running for the top in the market this morning, trading on nearly 100% gains in the premarket hours. The gains come after the company’s recent announcement of a merger with Bonanza Creek Energy (NYSE: BCEI). Here’s what’s going on:
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HPR Stock Rockets On BCEI Merger
Recently, news broke that HighPoint Resources entered into a definitive merger agreement with Bonanza Creek Energy in a deal worth around $376 million. As a result of the agreement, the two companies will merge in the Denver-Julesburg basin and a new entity will be formed that combines their property and production.
Once the transaction is complete, HPR said that the new company will own about 206,000 acres of leases with daily production capacity of approximately 50,000 barrels of oil per day. Moreover, the merger will generate significant savings for the combined company.
In fact, the merger will generate savings of about $31 million and free cash flow of about $130 million in the fiscal 2021 year.
The two companies are expected to merge in the first quarter of 2021. Upon the completion of the merger, BCEI shareholders will own 68% of the combined company while HPR shareholdrs own 32%.
In a statement, Eric Greager, President and CEO at BCEI, had the following to offer:
The combination of Bonanza Creek and HighPoint creates significant scale in the rural DJ Basin, which will immediately increase free cash flow generation. The combination of our complementary asset bases will yield significant synergies and represents a transformative transaction for Bonanza Creek.
The above statement was followed up by Scot Woodall, President and CEO at HPR. Here’s what he had to offer:
This transaction will create a premier DJ Basin player with a peer leading cost structure and a large, attractive rural footprint. The transaction provides HighPoint stakeholders with the opportunity to participate in a larger DJ Basin producer with both an attractive balance sheet and free cash flow profile.
Finally, Brendan Circle, SVP and Portfolio Manager at Franklin Advisors, the largest shareholder of HPR, said:
We are excited to become a shareholder of the new Bonanza Creek. Bonanza Creek exhibits a number of the qualities that we look for in investment opportunities: strong management, an excellent balance sheet, attractive free cash flow profile, and an ability to return significant cash flow to its shareholders. We look forward to forging this new relationship with the Bonanza Creek team.
This Is Huge News
The news released by HighPoint Resources and Bonanza Creek Energy is overwhelmingly positive for all involved. Both companies will enjoy access to increased assets through the merger as well as improved financial stability.
Moreover, the combined company is expected to generate significant cash flow, while reducing overall expenses in the 2021 fiscal year. That’s exciting news. So exciting in fact that it seems to have triggered a short squeeze, leading to the dramatic gain in value that we’re seeing in HPR stock this morning. All in all, this is an opportunity in the making!
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