Penn Virginia (PVA) announced it successfully completed an upsized bond offering today, at 8.5% interest. The offering was increased to $775 million from $400 million. It was initially going to fund the $400 million acquisition of Eagle Ford acreage and production from Magnum Hunter (MHR), and now the additional money will be used to retire higher interest debt (10.375%) and provide extra liquidity to fund PVA's drilling plan.
In response to the upsizing of this offering and the relatively low interest rate of bonds, PVA stock is up 7.5% today, to $4.35 per share. Penn Virginia is certainly interesting at these levels, as it has de-risked the funding of the acquisition, fully funded its development program for the next year, and has substantial delineated Eagle Ford inventory to develop. The asset it acquired is nearby EOG's (NYSE:EOG) core Gonzales acreage, where EOG has drilled wells that had initial production in excess of 6,000 boepd, and on strike with land held by Marathon (NYSE:MRO), Sanchez (NYSE:SN) and Lucas (NYSEMKT:LEI), where Marathon and Sanchez have drilled highly productive wells, too.
The deal also has positive implications for Magnum Hunter. It reduces liquidity concerns for the company, and it indicates strong demand for oil and gas high yield debt, which could be useful to Magnum Hunter in further debt financing the development of its remaining fields in the Bakken and the Marcellus, and could also be helpful in financing Magnum Hunter's pipeline subsidiary, Eureka Hunter.
Another company likely to benefit from the high yield window for small oil and gas companies being open is Gastar Exploration (NYSEMKT:GST). Gastar recently announced an acquisition in the oily Sooner Trend in Oklahoma, sold by Chesapeake Energy (NYSE:CHK), and intends to finance the acquisition with a bond or preferred offering in the range of $100-200 million. The Penn Virginia deal has positive implications for such an offering - there may be higher than expected demand for such a deal, which could lead to similar up-sizing and a similar lower-than-expected interest rate. These could positively impact Gastar's stock price, similar to the positive affect of the PVA/MHR deal on both PVA and MHR stock.
Disclosure: I am long GST, LEI, MHR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. The author may buy or sell positions in any of the companies mentioned at any time without further disclosure.