Lilis Energy to merge with Brushy Resources

Denver, Colorado-based Lilis Energy Inc. (NASDAQ: LLEX) has signed a definitive agreement to merge with Brushy Resources Inc., a San Antonio, Texas-based oil and gas company with primary operations in the Permian Basin in West Texas. Lilis expects the merger to close early in the second quarter of 2016.

The total consideration paid in the transaction comprises the issuance of Lilis shares of common stock representing 50% of the post-closing, common stock outstanding, and assuming and refinancing $13.55 million in debt. In addition, at the closing, Brushy will divest certain of its assets in south Texas to its subordinated lender in exchange for the extinguishment of $20.50 million in subordinated debt, payment of $500,000 in cash, and the issuance of a $1 million subordinated note.

As a result of the transaction, Lilis is acquiring approximately 3,500 core net acres in the Permian’s Southern Delaware Basin in the Crittendon field of Winkler County, Texas, with more than 500 potential drilling locations. Total net daily production on the assets being acquired is approximately 460 barrels of oil equivalent, with 47% oil.

In addition to, and as part of the transaction, at closing, Michael Pawelek and Edward Shaw, CEO and COO of Brushy Resources, respectively, are expected to be joining Lilis Energy’s team in senior management roles, and Pawelek and Peter Benz, a Brushy Resources board member, are expected to be appointed to the Lilis board of directors. In addition, Brushy’s employees will become employees of Lilis.

The assets being acquired are in the Delaware Basin in Winkler County. Brushy has approximately 3,500 net acres of multi-stack reservoir pay in the Wolfcamp, Bell Canyon, Brushy Canyon, Strawn, and Atoka zones. Brushy has completed two wells in this area utilizing “Window Pane” completion technology which utilizes existing vertical well bores and then horizontally fracs and completes wells in selected zones. Brushy has an additional 12 wells utilizing Window Pane completion technology. Brushy has identified more than 500 possible horizontal locations in its Permian acreage, none of which have any proven reserves currently booked.

The transaction adds Permian Basin operations to Lillis’ interests in the Denver-Julesburg Basin.

Lilis intends to refinance its existing senior indebtedness and convert all of its existing subordinated debt and preferred stock into shares of common stock at a price of $0.50 per share. The recapitalization plan will allow Lilis to capitalize on its economic inventory of oil and gas assets and to pursue additional accretive transactions.

Simultaneous with entering into this merger agreement, Lilis is undertaking several steps to strengthen its balance sheet and overall financial position in conjunction with the closing of the merger. These steps include:

  • Lilis has entered into an agreement with holders of $6.85 million in outstanding debentures to convert the debentures into common stock at a price of $0.50 per share, upon closing of the transaction subject to the receipt of stockholder approval.

  • Lilis intends to include a proposal at the special meeting of stockholders to offer holders of its existing Series A preferred stock to convert into shares of common stock at a price of $0.50 per share.  

  • Lilis has entered into a forbearance agreement with Heartland Bank of Arkansas in order to support consummation of the merger and refinancing of its existing indebtedness with the bank.

The merger is subject to customary closing conditions, including stockholder approval and the refinancing of Brushy’s senior debt.

ROTH Capital Partners initiated the transaction and served as financial advisor to Brushy Resources.

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