Synergy Resources nets $165M in stock offering

Synergy Resources Corp. (NYSE MKT: SYRG) raised $165.8 million with a public offering of common stock (16.186 million shares priced at $10.75 per share), which, according to analysts, gives the Denver-Julesburg Basin-focused company cushion, and possible options, during the recent downturn.

After deducting fees, the Platteville, CO-based company will net $165.8 million and, if the over-allotment option is exercised (2.427 million shares), the company could net $190.7 million. Proceeds are expected to pay off approximately $77 million from FY14 as well as borrowing from the recent $125 million dollar acquisition that closed in December, according to Wunderlich Securities calculations, and to fund asset acquisitions in the Wattenberg field, which, as Synergy noted in a statement, "may become available from time to time."

Stifel analysts also pointed to Synergy’s balance sheet, noting the company’s revolving credit facility, which has a $230 million borrowing base, a commitment of $500 million, and had $146 million drawn as of December 31, should fund the remainder of FY15 projected exploration and drilling expenditures of approximately $80 million. Stifel noted a higher than expected share count and lower than estimated offering price and is maintaining its Hold rating on the company primarily due to near-term oil price risk.

"War chest"
In a note to investors Wednesday calling the equity raise “a big war chest,” Wunderlich Securities analysts expressed optimism. “With a strong balance sheet, SYRG should do well regardless of how the downturn unfolds, an enviable position to be in.” Wunderlich Securities Inc. acted as co-manager in connection with the stock offering.

Synergy was the fastest-growing company among the OGJ150 group of companies, ranked according to stockholders’ equity, for the third quarter of 2013, and remained among the fastest-growing again for the third quarter 2014. The company has been quietly growing its footprint, adding “small chunks of acreage” noted Wunderlich the analysts, citing the company’s growth not only in the Wattenberg field, but in Nebraska, where, in an early 2014 interview with OGFJ, Synergy expressed excitement, saying it “could turn out to be as important to Synergy as our Wattenberg field asset.”

As the current downturn continues, Wunderlich views Synergy as well-positioned. “SYRG is beginning to see more inbound calls from companies with some very interesting assets. With redetermination of credit lines coming up, some companies might see liquidity drying up. In our opinion, sellers will become more motivated as we grind through this period of weak crude prices and SYRG wants to be ready to pounce.”

In connection with the common stock offering, Seaport Global Securities LLC is acting as sole book-runner/co-lead manager, Johnson Rice & Company LLC is acting as co-lead manager, KeyBanc Capital Markets Inc. and SunTrust Robinson Humphrey Inc. are acting as senior co-managers and IBERIA Capital Partners LLC, Roth Capital Partners LLC, Wunderlich Securities Inc., Canaccord Genuity Inc., Euro Pacific Capital Inc., GMP Securities LLC, Imperial Capital LLC and Northland Securities Inc. are acting as co-managers.

The deal is expected to settle on February 2, 2015.

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