Resolute Energy Corp (NYSE: REN)
Resolute Energy is having an incredibly strong day in the market today, and for good reason. The company announced the purchase of oil and gas assets. Today, we’ll talk about the assets the company purchased, how the stock reacted to the news, and what we can expect to see from REN ahead. So, let’s get right to it…
REN Purchases Oil & Gas Assets
As mentioned above, Resolute Energy is having a strong day in the market today after announcing the purchase of oil and gas assets. The company said in an announcement today that it would acquire assets from Firewheel Energy in a sale totaling $135 million.
Under the terms of the purchase agreement, REN said that it would buy 3,293 net acres of land from Firewheel. While the land is nice, the fact that it sits in a highly productive basin makes it that much more valuable. In fact, the purchased properties currently produce around 1,200 barrels of oil equivalent per day.
When it comes to the finances of the deal, REN will pay about $90 million of the total value in cash. The rest of the deal will be paid via shares of the company. In fact, the company said that it would be issuing a new private offering of 55,000 shares of a newly-created preferred class of stock. These stocks will be used to cover the additional value of the sale. The new series B preferred shares come with a price of $1,000 per share and will pay an 8.125% dividend yield. These shares can also be converted to common stock for $29.53 per share.
How The Stock Reacted To The News
As investors, one of the first things that we learn is that the news moves the market. Any time positive news is released with regard to a publicly traded company, we can expect to see gains in the value of the stock associated with the news. Of course, the news released today with regard to REN was overwhelmingly positive. The company has put together a deal to purchase assets that are known for high production at a relatively low cost. Not to mention that part of the purchase price was converted as an investment, giving the purchases a vested interest in the sale. All in all, the company was very smart in how they did this. As a result, we’re seeing gains in the value of the stock. Currently (3:49), the stock is trading at $30.50 after a gain of $4.82 per share or 18.77% thus far today.
What We Can Expect To See Moving Forward
Moving forward, my position with regard to Resolute Energy is starting to shift. While I remain concerned with regard to the state of the oil market as a whole, the company’s recent moves have shown that they are taking advantage of the still very low oil prices, in an attempt to become a massive company in the future.
With that said, I’m starting to view REN in a more bullish light. Nonetheless, at this point, I believe that the stock is still only suited to those that are most comfortable with risk.
What Do You Think?
Where do you think REN is headed moving forward? Join the discussion in the comments below!