Denbury Resources Inc. and Penn Virginia Corporation have entered into a definitive merger agreement pursuant to which Denbury will acquire Penn Virginia in a transaction valued at approximately $1.7 billion, including the assumption of debt. The consideration to be paid to Penn Virginia shareholders will consist of 12.4 shares of Denbury common stock and $25.86 of cash for each share of Penn Virginia common stock. Penn Virginia shareholders will be permitted to elect all cash, all stock or a mix of stock and cash, subject to proration, which will result in the aggregate issuance of approximately 191.6 million Denbury shares and payment of $400 million in cash.  The transaction was unanimously approved by the board of directors of each company, and Penn Virginia shareholders holding 15% of the outstanding shares signed a voting agreement to vote “for” the transaction.

Chris Kendall, Denbury’s President and CEO, commented,
“This transaction marks a defining moment for Denbury, meeting multiple strategic objectives to create a balanced, resilient, and growing business with significant scale, while reinforcing our position as the highest oil-weighted producer in our peer group.  Penn Virginia’s Eagle Ford assets will add many years of high value, low breakeven development to our portfolio, complementing Denbury’s long-lived, high-margin assets.

“The combination is accretive to key per-share metrics and will immediately improve the Company’s leverage profile. The combined company will have a stronger balance sheet, enhanced by its growth trajectory and scale. We expect the combined company will generate positive free cash flow immediately, while growing at a meaningful and sustainable pace.

“Through this combination, we plan to focus Denbury’s significant enhanced oil recovery expertise on the prolific Eagle Ford shale, positioning us at the forefront of this exciting new arena for EOR. Denbury’s passion for improved oil recovery and our deep technical knowledge give us a strong advantage on this new frontier.”

John A. Brooks, President and Chief Executive Officer of Penn Virginia, stated,
“Following the comprehensive strategic review process, we believe a merger with Denbury Resources maximizes value for our shareholders and represents an ideal outcome for our company and all of our stakeholders. The premium offered to Penn Virginia shareholders reflects our quality assets and the steps we have taken to enhance our business. Both companies share complementary attributes, including high-quality oil-weighted assets, peer-leading margins and the ability to generate significant free cash flow. Applying Denbury’s demonstrated expertise in enhanced oil recovery to the oil-rich resources of our large, contiguous Eagle Ford acreage provides our shareholders the opportunity to maximize value acceleration of Penn Virginia’s South Texas unconventional oil shale assets. As a result, the transaction will result in a combined company that is uniquely positioned for long-term success, and provides Penn Virginia’s shareholders with excellent value and significant upside.”

Mr. Brooks added,
“As we embark on this unique and exciting combination with Denbury, I also want to take this opportunity to recognize Penn Virginia’s most important asset, our employees. I believe they are one of the best teams in the business, and this transaction recognizes the value created by their efforts.”

STRATEGIC RATIONALE 

• Provides a new core position in the oil window of the Eagle Ford in close proximity to Denbury’s existing Gulf Coast operations
• Enhances investment diversity by adding a significant inventory of short cycle unconventional development opportunities to Denbury’s medium cycle EOR project portfolio
• Provides the opportunity to leverage Denbury’s EOR expertise in the emerging Eagle Ford Shale EOR play
• Reinforces Denbury’s leading oil weighting among its peer group
• Strong combined free cash flow profile provides capital utilization optionality
• Immediately accretive to cash flow per share and other key per-share metrics
• Enhanced size and scale and reduced pro forma leverage create a strong credit profile that should result in a lower long-term cost of capital

COMBINED PRO FORMA COMPANY HIGHLIGHTS 

• Forms a leading, diversified mid-cap oil producer with top-tier industry margins, strong production growth trajectory and ability to generate significant free cash flow
• $6.0 billion enterprise value as of October 26, 2018
• 343 MMBOE(1) of proved oil, natural gas liquids and natural gas reserves at December 31, 2017
• 84 MBOE/d second quarter 2018 production
• Industry leading oil weighting with 94% liquids production and 90% oil production
• $915 million second quarter 2018 annualized EBITDAX ($1.2 billion excluding second quarter hedge settlements)
• 70% of production tied to LLS pricing, which has historically attracted strong premiums to WTI NYMEX pricing

TRANSACTION DETAILS 

Under the terms of the definitive merger agreement, shareholders of Penn Virginia will receive, subject to proration, a combination of 12.4 shares of Denbury common stock and $25.86 of cash for each share of Penn Virginia common stock, representing consideration to each Penn Virginia shareholder of $79.80 per share based on the closing price of Denbury common stock on October 26, 2018.  Penn Virginia shareholders will have the option to receive all stock or all cash, subject to proration such that the overall mix of consideration does not result in more or less than $400 million in cash being paid. The overall mix of consideration will be 68% Denbury common stock and 32% cash. The stock portion of the consideration received by Penn Virginia’s shareholders is expected to be tax-free. Upon closing of the transaction, Denbury stockholders will own approximately 71% of the combined company, and Penn Virginia shareholders will own approximately 29%.

Denbury intends to finance the transaction with a combination of equity (issued to Penn Virginia shareholders), debt and cash on hand. Denbury has received a financing commitment letter from JPMorgan Chase Bank, N.A. for a new $1.2 billion senior secured bank credit facility, replacing its current facility under which no amounts are currently outstanding, and a $400 million senior secured second lien bridge financing. The two new debt financings will be used to fully or partially fund the $400 million cash portion of the consideration, potentially retire and replace Penn Virginia’s $200 million second lien term loan, replace Penn Virginia’s existing bank credit facility, which had $283 million drawn and outstanding as of September 30, 2018, and pay fees and expenses.

The transaction, which is expected to close in the first quarter of 2019, is subject to the approval of Penn Virginia shareholders and is subject to approval by Denbury’s stockholders of the issuance of common stock and an amendment to Denbury’s charter to increase its authorized shares. The transaction is also conditioned on clearance under the Hart-Scott Rodino Act and other customary closing conditions.

The merger agreement contains a covenant that upon its closing, Denbury’s board of directors will be expanded from eight directors to ten directors, to include two independent members of Penn Virginia’s board of directors who are mutually agreed upon by Denbury and Penn Virginia.