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Oil & Gas Financial Journal

Merger details
Stone Energy Corp. will acquire Bois d'Arc Energy Inc. The transaction has an aggregate value of roughly $1.8 billion.

The combination of these two companies will result in one of the largest Gulf of Mexico-focused operating companies, with a solid production base, a strong portfolio for continued development of proved and probable reserves, and an extensive inventory of exploration opportunities.

Following the merger, Stone expects to produce over 300 MMcfe/d and have over 700 bcfe of estimated proved reserves and approximately 275 bcfe of estimated probable reserves, with a multi-year exploration prospect inventory, extensive 3D seismic coverage over the Gulf of Mexico, and a material leasehold position of over 800,000 net undeveloped acres.

Stone expects to fund the transaction utilizing existing cash on its balance sheet, borrowings from a proposed new $700 million credit facility underwritten by Bank of America NA, and the issuance of roughly 11.3 million shares of Stone common stock. The transaction is expected to close in the third quarter of 2008. Following the closing, Stone will remain headquartered in Lafayette, La., and David Welch will continue as CEO.

Post closing, it is anticipated that the Stone stockholders will own roughly 72% of the combined company, and the Bois d'Arc stockholders will own the remaining 28%.

Concurrent with the execution of the merger agreement, Comstock Resources Inc., which holds approximately 49% of the outstanding shares of Bois d'Arc, has agreed to vote in favor of the merger. In addition, Gary Blackie (a director and the CEO of Bois d'Arc) and Wayne Laufer (a director and the former CEO of Bois d'Arc), who own roughly 8% and 10%, respectively, of the outstanding shares of Bois d'Arc common stock, also agreed to vote in favor of the merger.

Scotia Waterous (USA) Inc. and Raymond James & Associates Inc. acted as financial advisors to Bois d'Arc, and Raymond James & Associates Inc. provided a fairness opinion to the board. Tudor, Pickering, Holt & Co. acted as financial advisor to Stone and provided a fairness opinion to the board.

Corporate rating
Moody's Investors Service has affirmed Stone Energy Corp.'s 'B3' corporate family rating and 'Caa1' senior subordinated note rating following the news of the acquisition.

The outlook is stable, reflecting the increased scale of the combined company as well as the outlook for commodity prices, both of which provide the company with additional opportunities to achieve reserve and production growth and to execute its debt reduction strategy, the rating agency said.

The 'B3' ratings continue to reflect Stone's inconsistent track record of replacing its reserves and the company's very high cost structure, Moody's said.