Matador priced at $12, below the $14-16 price talk. Still looks like nothing more than a bet on an unknown operator in a new play for them, the EFS. With service tightness in the 'hot' plays, I am wary of smaller, newer operators there, so would take a wait-and-see for more results.
I wasn't felling too smart when DOR got pulled as it seemed ok to me relative to MTDR, but in came Tom Ward in with a last minute takeover. Interestingly, he had spoken a few days ago on bloomberg about wanting to stay away from tight rock, that they like permeability and porosity and would be willing to go into Gulf of Mexico to find rock like that. Even after hearing that I never saw this. The obvious question to me is if the MS Lime is so good, why buy into Gulf? DOR was a rollup, does he expect to continue to grow through acquisitions or is it simply a cash flow and delveraging play? The press release would seem to indicate the latter, but the lower financial risk will at least be partially offset by higher geological/operating risk. The deal does help to delever SD by a bit more than a turn of Debt/EBITDAX.
DOR, SGY and WTI are very similar in size and commodity mix, yet look at the cash flow margins below? Cash flow is defined here as CFO before working capital, or FFO. Why the difference? SD, due to its high leverage and crappy gas assets has one of the worst CF margins in the sector and are buying a peer-lagging CF margin Gulf of Mexico operator.
2008 2009 2010 9ME 9/10 9ME 9/11
DOR 57% 14% 44% 43% 57%
SGY 66 65 65 65 68
WTI 73 64 59 63 62
What might be missing in this deal is some crazy gas numbers from SD's year-end reserve results.
48% of SD's production in 3Q11 was natural gas, yet: