T?he spurned have found common ground. Stone Energy Corp., twice bid for and left at the altar in 2006, plans to buy Bois d’Arc Energy Inc. this year for some $1.8 billion in cash and stock. Potential buyers of Bois d’Arc had reviewed the Houston-based company’s assets last year but had made no acceptable bids.


Lafayette, Louisiana-based Stone has come a long way from being pushed down by an M&A vortex. In the spring of 2006, Plains Exploration & Production Co. bid to buy the Gulf of Mexico- and (then) Rockies-focused company, and investors knocked Plains’ shares down for it (although many of its peers were hit at the time too, as natural gas prices were declining).


The bloom was off the rose, then, and Plains readily accepted Stone’s break-up-fee check when New Orleans-based Energy Partners Ltd. stepped up with a bigger offer. Yet, Woodside Petroleum Ltd. then made a bid for EPL that required it to drop its offer for Stone. And, it did.


Eventually, Woodside didn’t buy EPL, which didn’t buy Stone, and Stone chief David Welch had a lot of morale-rebuilding to do, including tossing (out) the bouquet.


Meanwhile, Bois d’Arc’s leakage began in 2007, when it solicited preliminary purchase offers but none showed sufficient financing. The company was IPO’d by Comstock Resources and its Gulf of Mexico joint-venture partners in May 2005.


The privately operated Bois d’Arc needed more capital access to proceed with exploration plans, and Comstock wanted to move the higher-risk portfolio onto another book and present itself as an onshore-focused producer. (The deal was named “Financing of the Year” by Oil and Gas Investor for 2005.)


Who’s the winner now? In the past 12 months, Stone’s stock price has doubled; Comstock’s has improved 80%; Woodside shares are up 60%; and Plains and Bois d’Arc’s have grown 50%. Left at the gate, EPL’s share price is mostly unchanged from May 2007.


Standard & Poor’s Ratings Services had upgraded its outlook on Stone’s credit quality to “stable” from “negative” in March and affirmed its B+ corporate rating and B+ subordinated-notes rating, citing strengthening credit metrics, liquidity, operations, reserve replacement and costs.


It put Stone and Comstock (BB- corporate; B+ senior notes) on CreditWatch with negative implications, though, upon the Stone-Bois d’Arc news. S&P analyst Jeffrey Morrison’s figures are based on an estimated 50% to 70% recovery rate in the event of a Stone default; a 10% to 30% rate, if Comstock.


“Our concerns derive from changes to the capital structure and assets caused by the transaction—specifically, increased secured debt capacity at Stone, and a reduced enterprise valuation at Comstock after the sale of its interests in Bois d’Arc.”


At year-end 2007, Stone had $400 million of long-term debt and a total $589 million of that and other obligations. Comstock holds 49% of Bois d’Arc shares today; post-closing, it will hold 13% of Stone Energy shares.
Tudor, Pickering, Holt & Co. Securities Inc. analysts note that Stone’s assets and production are oil-weighted, so the stock should ride on higher commodity prices. They suggest a fair net asset value for Stone of $73 a share, and recommend accumulating it. Shares were about $70 at press time.


It’s far better than the $59 high the stock found at the height of the EPL bid in 2006, and much better than the $28 the stock fell to in the spring of 2007. (For more details on Stone’s bid for Bois d’Arc, see “Company Briefs” in this issue and online.)