Resaca and Cano Petroleum Plan U.S. Merger

The Boards of Resaca, the oil and natural gas production, exploitation, and development company focused on the Permian Basin in the USA, and Cano Petroleum, Inc.  have unanimously approved a definitive plan to merge the two companies in a tax-free, stock-for-stock exchange. Cano shareholders will receive 2.1 shares of Resaca common stock for every share of Cano common stock and will own approximately 50 percent of the combined company. Based on the closing price of Resaca common stock on 28 September 2009, the transaction implies total consideration to Cano shareholders of $76.0 million or $1.67 per Cano share and $3.34 per proved barrel of oil equivalent.

The newly combined company will have an estimated 63.2 million barrels oil equivalent (MMboe) of proved reserves (81% oil) with a PV10 value of approximately $652.9 million based on crude oil and natural gas prices in effect on 1 July 2009. The combined company will have another 28.5 MMboe of probable reserves attributable to waterflood and tertiary (CO2) recovery with a PV10 value of approximately $375.1 million based on crude oil and natural gas prices in effect on 1 July 2009 for total 2P reserves of 91.7 MMboe (PV10 of $1 billion). Resaca's probable reserves are based on third party engineering estimates and Cano's probable reserves are based on internal estimates. The net production for the combined company is estimated at 1,960 net barrels of oil equivalent per day at July 1, 2009.

The exchange ratio is calculated as a 32 percent premium over the 30-day volume weighted average price of Cano shares for the period ending September 28, 2009, relative to the 30-day volume weighted average price of Resaca shares during the same time period.

The combined company will retain the Resaca name, will be headquartered in Houston, Texas, and will be led by current Resaca Chairman, J.P. Bryan, who will become CEO upon completion of the transaction. The combined company's board will consist of four directors from Resaca and three from Cano. The company will continue to trade on the AIM Market of the London Stock Exchange (the "AIM"). Resaca's shares that trade on the AIM under current ticker RSOX will be traded under ticker symbol RSX following the filing and effectiveness of a registration statement with the Securities and Exchange Commission. Resaca will also obtain a NYSE Amex listing as a condition to closing.

Key strengths of the newly combined company include:

  • Complementary oil-focused properties with balanced growth opportunities (Resaca's proved developed non-producing reserves with Cano's proved undeveloped reserves)
  • Near-term low-risk identified production enhancement opportunities
  • Accelerated exploitation strategy with focus on long-life reserves
  • Significant cost savings currently estimated to be $4.5-5.0 million per year
  • Increased critical mass to more efficiently develop projects
  • Expanded institutional investor interest and capital market access via dual listing on NYSE Amex and AIM

J.P. Bryan, Resaca's Chairman, stated, "Through this transaction, the newly combined company will enjoy the benefits of tremendous synergies and strengths. This is clearly a case of one plus one equals so much more than two going forward. Both companies share a common growth strategy of acquiring and exploiting mature properties and implementing secondary and tertiary recovery techniques. The combined assets are most complementary geographically and combine the near-term production upside from Resaca's recompletion portfolio with long-term upside from Cano's proved undeveloped waterflood reserves. The fields we both possess are prime candidates for CO2 tertiary recovery. This will become the next great global initiative for recovering substantial quantities of oil from mature fields. We will strive to lead, not follow, in that effort. Our combined staffs bring together some extraordinarily talented individuals to help ensure our success. This is an exciting long-term value story for the shareholders of both companies."

Jeff Johnson, Cano's Chairman and CEO, added, "Today's announcement will provide our shareholders with a solid foundation to grow this business. Resaca's near-term production growth potential and synergies will add the cash flows needed for all shareholders to realize the long-term upside of both companies' assets. The significant financial advantages of this combination will benefit our shareholders and employees. Cano shareholders will not only receive a significant premium to its current share price, but they will also be able to participate in the upside of the stronger combined entity."


Related Companies
 Company: Cano Petroleummore info
 - Cano CFO to Resign (Jun 17)
 - Cano Waves Goodbye to CEO (Feb 14)
 - Cano Terminates Merger Agreements with Resaca (Jul 22)

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