Under the terms of the agreement, KCS stockholders will receive $9.00 per share in cash and 1.65 shares of Petrohawk common stock for each share of KCS common stock they own. This represents consideration to KCS stockholders of $31.41 per share based on the closing price of Petrohawk shares on April 20, 2006. Following the transaction, KCS stockholders will own approximately 50% of the combined company.
The transaction positions Petrohawk as one of the top independent exploration and production companies in the U.S. The combination will also create one of the most concentrated and high impact set of domestic oil and natural gas assets amongst independent E&P companies, primarily focused in the east Texas / north Louisiana, onshore Gulf Coast, Permian and Anadarko / Arkoma regions.
Floyd Wilson will continue his role as the Company's Chairman, President and CEO. KCS's James Christmas will serve as Vice Chairman and William Hahne as Executive Vice President and Chief Operating Officer of the combined company. Following the completion of the merger, the Company will have nine directors, five nominated by Petrohawk, including Floyd Wilson, and four nominated by KCS, including James Christmas.
"The asset quality and fit derived from this transaction are unparalleled in my experience," stated Floyd C. Wilson, Chairman, President, and Chief Executive Officer of Petrohawk. "KCS is a proven operator; and we believe our combined properties have extraordinary development and exploration potential. We feel the collective staff of Petrohawk and KCS is uniquely qualified to create value from the tremendous upside potential inherent to both companies. Jim Christmas will be Vice Chairman and continue to play a key role in the Company. In addition, we hope to retain the majority of the talented KCS staff. This combination creates the company we originally set out to build."
"We have been impressed by the job that Floyd Wilson and his team have done in building Petrohawk to its current position in very short order through a series of high quality, strategic acquisitions that have made it a formidable competitor in the areas we operate. By combining KCS, which has grown rapidly through drilling, and Petrohawk, we are creating an even stronger company with proved oil and gas reserves of nearly 1 Tcfe, current daily production of over 290 Mmcfe and very significant additional potential in our core operating areas," said James W. Christmas, Chairman and Chief Executive Officer of KCS. "We believe that this combination not only delivers immediate value to the stockholders of both companies, but also creates a company well positioned to deliver above average growth in value going forward."
Petrohawk, a company grown primarily through strategic acquisitions, and KCS, which has grown predominantly through successful exploration and development activities, are expected to utilize expertise from each company to realize the substantial upside potential within the combined portfolio.
Pro Forma Statistics:
Pro Petrohawk KCS Forma Proved Reserves (Bcfe) at December 31, 2005(a) 517 463 980 Proved Developed 64% 73% 68% Natural Gas 76% 88% 82% Operated (based on reserves) 60% 86% 74% Estimated Current Production (Mmcfe/d) 135 156 291 R/P (years) 10.5 8.2 9.2
(a)Petrohawk reserves include approximately 106 Bcfe of internally-estimated reserves associated with a recently closed north Louisiana acquisition. KCS reserves include internally estimated 11 Bcfe of reserves for another recently closed north Louisiana acquisition.
Netherland, Sewell and Associates, Inc., an independent reserve engineering firm, prepares Petrohawk's and audits KCS's estimated proved reserves.
Combined Capital Budget:
The combined capital program for 2006 represents record activity levels in core operating areas and includes over 500 planned wells, including over 200 non-proved locations.
Pro Forma 2006 Capital Expenditure Budget ($ millions): HAWK KCS Pro Forma % --------------------------------------- East Texas / North Louisiana $51 $158 $209 40 Onshore Gulf Coast 110 88 198 38 Permian 18 41 59 11 Anadarko / Arkoma 31 28 58 11 --------------------------------------- Total $210 $315 $525 100
Pursuant to the terms of the agreement, KCS stockholders will receive $9.00 per share in cash and 1.65 shares of Petrohawk common stock for each share of KCS common stock they own, or collectively $450 million in cash and approximately 84 million Petrohawk common shares, not including outstanding KCS stock options. KCS stock options will convert into Petrohawk options pursuant to the terms of the merger agreement.
The transaction is subject to the approval of the stockholders of Petrohawk and KCS. The boards of directors of both companies have unanimously approved the merger agreement, which is subject to customary conditions, including approval of listing of the Petrohawk shares to be issued in the merger on NASDAQ and regulatory approvals. The transaction is expected to be completed during the third quarter of 2006.
Harris Nesbitt acted as financial advisor, Hinkle Elkouri Law Firm LLC and Thompson & Knight LLP acted as legal advisors and Petrie Parkman provided a fairness opinion for Petrohawk. Morgan Stanley acted as exclusive financial advisor and rendered a fairness opinion to KCS in connection with the transaction. Andrews Kurth LLP acted as legal advisor and Griffis & Associates, LLC acted as technical advisor to KCS.
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