Heckmann boosts fracking business with $381 million deal
(Reuters) - Water management company Heckmann Corp HEK.N will buy privately held Power Fuels for about $381 million as it eyes a bigger share of the fracking market.
Heckmann's shares surged 26 percent as investors cheered the deal that expands the company's operations to the oil-rich Bakken shale formation.
The company will pay $125 million in cash and offer 95 million shares, worth about $256 million as of Friday, as part of the deal. It will also assume about $150 million worth of debt.
Heckmann provides energy companies with water for fracking, or hydraulic fracturing, a process in which chemicals, sand and water are injected into the earth to fracture shale formations and release oil and gas.
The company also treats the waste water generated during the process. Hydraulic fracturing has sent output from shale fields in North America soaring in the last decade, though it has come under fire recently for polluting water supplies.
Heckmann has been transferring certain operating assets to oil- and liquids-rich basins, where drilling activity is more robust, to offset the drop caused by decade-low natural gas prices.
After the deal, the company will be 70 percent levered to oil basins, Credit Suisse analyst Hamzah Mazari said.
"This transaction makes Heckmann the largest pure-play company handling frac fluids with 2013 revenues likely nearing $1 billion," Mazari wrote in a note to clients.
"Significant operational control" given to Power Fuels partly led to "a cheap acquisition price", he said.
"The company is paying 3.4 times earnings before interest, taxes, depreciation, and amortization (EBITDA) for Power Fuels, which is an attractive price," Mazari said.
Mark Johnsrud, who has led Power Fuels since 2005, will become the CEO of the combined company, while Heckmann's CEO Richard Heckmann will become the executive chairman of the board.
"Heckmann has always been more of a strategic deal maker rather than an operator so the change makes sense," Mazari said.
The deal is expected to "highly" add to Heckmann's earnings per share and double Heckmann's annual revenue once it closes, mostly likely in the fourth quarter.
The acquisition of Power Fuels, based in North Dakota, will give Pennsylvania-based Heckmann access to the oil-rich Bakken Shale area, extending over Montana, North Dakota, and Saskatchewan.
It will also broaden Heckmann's customer base, allowing it to add big names such Hess Corp (HES.N), Statoil ASA (STL.OL), Whiting Petroleum Corp (WLL.N) and Denbury Resources Inc (DNR.N). The combined company will have over 20,000 customers.
Heckmann also said it will hire Jay Parkinson of Jefferies & Co's energy investment banking group as its new chief financial officer.
Heckmann's CFO Chris Chisholm will become the CFO of the newly created fluids management division, which will include Power Fuels.
Jefferies & Company served as financial adviser to Heckmann, while Wells Fargo advised Power Fuels.
Heckmann also has an environmental service unit that provides collection and recycling services for oily waste products.
In March, it acquired Thermo Fluids from Chicago-based private equity firm CIVC Partners to expand to oil collection, recycling and resale.
The company's shares came under pressure last month after it shied away from giving a financial forecast for the year.
Heckmann's shares touched $3.38, their highest in nearly a month, on Tuesday on the New York Stock Exchange.
(Reporting by Swetha Gopinath and Sakthi Prasad; Editing by Dan Lalor, Saumyadeb Chakrabarty and Sreejiraj Eluvangal)
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