Petrohawk Energy Corp., Houston, (Nasdaq: HAWK) plans to acquire Mission Resources Corp., Houston, (Nasdaq: MSSN) for stock, $135 million in cash and the assumption of debt in a deal valued at $555 million. The offer is $8.15 or 0.7718 Petrohawk share per Mission share, a 19% premium to MSSN's preannouncement closing price. The deal represents more than $1 billion in purchases by Petrohawk in less than a year. Last summer, it closed a reverse merger with publicly held Beta Oil & Gas, in November it bought privately held Wynn-Crosby Energy and this winter it purchased Proton Oil & Gas. "Bob Cavnar and his fine management group have truly created a new Mission," says Floyd Wilson, Petrohawk chairman. "We believe this asset base will complement Petrohawk's property portfolio, as have previous acquisitions of companies with similar attributes...We will continue to attempt to increase shareholder value as we build the company for eventual sale or merger." The Permian Basin will become a key operating area for Petrohawk and contribute more than 650 identified opportunities including more than 200 proved drilling locations. Mission brings 226 billion cu. ft. of gas equivalent in proved reserves (78% proved developed; 60% gas; 45% operated) to Petrohawk's 220 billion (72% proved developed; 73% gas; 63% operated). After closing, Petrohawk will produce 125 million cu. ft. equivalent per day and have a reserves-to-production ratio of 9.8 years. The combined company will have assets in the Permian Basin, East Texas, the Anadarko Basin, South Texas, the Gulf Coast, the Gulf of Mexico and the Arkoma Basin. (For more details on Mission's assets, see "Mission Possible," Oil and Gas Investor, February 2005. For details on Petrohawk's assets, see "Big Fish," March 2005.) The transaction is expected to close in the third quarter. Two directors nominated by Mission will join Petrohawk's board. Both companies were initially funded in part with a private-equity placement by Houston-based EnCap Investments. Petrie Parkman & Co. was financial advisor to Mission and Merrill Lynch & Co. rendered a fairness opinion. Sanders Morris Harris provided a fairness opinion to Petrohawk. Michael D. Bodino, an analyst at Sterne Agee & Leach, says, "We believe Petrohawk has positioned itself with a quality portfolio through a series of transactions during the past 12 months." He has a Buy rating on the stock and a $14 price target. Marketplace response to the news was positive. Petrohawk shares improved to $11.53, and Mission stock improved to $7.22. Standard & Poor's Ratings Services placed Mission on CreditWatch with negative implications after the announcement "Despite the expectation of overall cash flow strengthening from production adds and potential per-unit cost savings, further information will be required to assess the potential operating and financial performance of the combined entity," says S&P credit analyst Jeffrey B. Morrison. "Furthermore, despite both management teams having an established track record operating within the region, the expectation that experienced technical staff will be retained, and the apparent compatibility of reserves, the CreditWatch listing does reflect potential challenges facing management upon integrating an acquisition of this size."

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