Atlas Energy Solutions Inc. to Acquire Hi-Crush Inc., Creating the Largest Proppant Producer in the Country and an Industry Leading Logistics Provider
- Acquisition of Hi-Crush Inc.'s Permian assets for $450 million by AESI.
- Transaction includes cash, stock, and deferred payments.
- Pro forma production capacity of 28 million tons with significant contracted capacity.
- Expected EBITDA contribution of $110-125 million in 2024.
- Anticipated annual synergies of over $20 million by 2026.
- Expected to be immediately double-digit accretive to CFPS and EPS.
- Transaction to close by the end of the first quarter of 2024.
- None.
Insights
The acquisition of Hi-Crush's proppant production assets and logistics operations by Atlas Energy Solutions represents a strategic consolidation within the energy sector, specifically the oil and gas production supply chain. The valuation of the deal at approximately 3x 2024 Adjusted EBITDA indicates a favorable purchase price for Atlas, given the industry standards where multiples can often range higher, especially for assets that offer immediate accretion to cash flow per share (CFPS) and earnings per share (EPS).
The transaction's structure, combining cash, stock and deferred payments, reflects a balanced approach to financing that preserves Atlas's liquidity while aligning the interests of both parties post-transaction. The expected annual synergies of over $20 million by 2026 suggest a clear path to cost reductions and operational efficiencies. Investors should note the potential for these synergies to enhance margins and profitability, particularly in a commodity-driven industry where cost leadership can be a significant competitive advantage.
From a market perspective, the combination of Atlas and Hi-Crush's assets is poised to create one of the largest proppant suppliers in the Permian Basin. With the Permian being a key region for U.S. oil production, the increased scale and contracted production capacity of approximately 28 million tons may provide Atlas with enhanced pricing power and market share. Moreover, the merger's emphasis on logistics and technology, such as autonomous trucking, is indicative of an industry trend towards innovation in supply chain management.
Investors should consider the broader impacts of such consolidation on the competitive landscape. While Atlas may gain immediate benefits, the reduced competition could also influence proppant pricing and availability for oil and gas producers. The strategic positioning of the combined entity will likely be a critical factor in Atlas's ability to capitalize on industry upswings and withstand downturns.
The energy sector is increasingly focused on efficiency and cost-effectiveness, particularly in unconventional resource plays like the Permian Basin. The acquisition's emphasis on combining leading logistics offerings, such as Dune Express and Pronghorn, is a direct response to the industry's demand for streamlined operations. The transaction is expected to enhance Atlas's service offerings, which is crucial for maintaining competitiveness in an industry where technological advancements and operational efficiencies can significantly impact profit margins.
Investors should also consider the environmental and regulatory implications of such acquisitions. As the industry faces pressure to reduce its carbon footprint, Atlas's investments in high-efficiency trucking operations and autonomous trucking could position the company favorably in the context of ESG (Environmental, Social and Governance) considerations, which are increasingly relevant to investors and stakeholders.
The transaction consideration includes
Acquisition Highlights
- Combination brings together two of the leading innovators in the Permian proppant space, and two of the largest holders of premium giant open dune sand reserves and resources in the Permian
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Pro forma production capacity expected to be ~28 million tons, with ~
80% of pro forma 2024 production capacity contracted, accelerating free cash flow generation and shareholder returns -
Adds ~12 mmtpy of production capacity (~5 million tons in
Kermit, TX , proximal to Atlas's existingKermit facilities and ~7 million tons from OnCore’s distributed mining network) (2) -
We expect the acquired assets to contribute
$110 -125 million - Broadens Atlas’s logistics offering through the addition of Pronghorn, a leading multi-basin provider of proppant logistics and wellsite services
- Estimated to be immediately double-digit accretive to CFPS and EPS (3)
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Expected to realize more than
$20 million - Acquisition maintains low and flexible operating cost structure and a strong margin profile
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Combines Atlas’s
Delaware Basin-leading logistics offering (Dune Express) with Hi-Crush’s Midland Basin-leading logistics offerings (Oncore + Pronghorn) to drive significant operational efficiencies - The transaction is expected to close before the end of the first quarter of 2024
Bud Brigham, Executive Chairman and CEO of Atlas commented, "This is a great day for Atlas and Hi-Crush, we are thrilled to bring these two great organizations together. Both companies have led the industry’s innovations to drive efficiencies in proppant and logistics in different but complementary ways, a testament to the high quality people involved. Combining the teams, their technologies and best practices, as well as their complementary geographical footprint, should compound constructively to the benefit of our shareholders. It also furthers our goal to lead the industry in transitioning the Permian, already the premier producing region in the country, to becoming the most efficient and livable energy manufacturing center in the world."
John Turner, President and CFO of Atlas commented, “Over the years both Atlas and Hi-Crush have invested significant capital in their proppant and logistics businesses to drive efficiency gains for our customers at the well site - Atlas with its Dune Express, high efficiency trucking operations, and autonomous trucking and Hi-Crush with its OnCore distributed mining network and Pronghorn logistics platform. These investments have supported a consolidating industry that has quickly scaled. We look forward to continuing to invest to drive innovation and efficiencies at the well site.”
Dirk Hallen, CEO of Hi-Crush commented, “I’m so proud of all that our team has accomplished over the past several years. I thank our employees for their relentless effort restoring Hi-Crush to a leadership position in our industry and thank our partners at Clearlake Capital Group and Whitebox Advisors for their support. I echo Bud and John’s excitement in uniting two of the most innovative players in frac sand under Atlas. There is no doubt that this winning combination will be transformative for our industry, employees, customers, and shareholders.”
Colin Leonard, Hi-Crush Board Chairman and Partner at Clearlake Capital Group L.P. added, “This transaction represents an important milestone for Hi-Crush after going through a strategic transformation over the past several years in partnership with Dirk and the broader team. The leadership has driven innovation and growth, as well as transformed the operational footprint of the business to address the evolving needs of our customers. Atlas’ investment reflects their conviction in the strategy, and we look forward to all that we will accomplish together.”
Pro Forma Estimated 2024 Outlook
The transaction has an effective date of February 29, 2024 and as such, Atlas will begin to include Hi-Crush’s financial results in its financial results from March 1, 2024 onwards. The guidance below reflects this partial-year ownership of the Hi-Crush assets and will be impacted by the timing of the completion of the Dune Express and additional Oncore deployments.
On a combined basis, we'll have 28 million tons of available production capacity, increasing to about 29 million tons in 2025 with a full year's contribution and the benefit of these additional Oncore deployments. As our contracted volumes and Permian activity levels remain strong, and completions efficiencies continue to compound proppant usage, we expect to continue to operate at
Financing Details
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Our ABL facility has been amended to, among other things increase the maximum borrowing availability to
$125 million ~ at closing$50 million -
Our Stonebriar Term Loan has been amended to, among other things install a new
$150 million - Atlas will use a combination of the above debt facilities to fund the cash component of the up-front purchase price and to add cash to the balance sheet to fund capital expenditures associated with Hi-Crush’s near-term investments in Oncore #8 and #9
- The number of shares to be issued to the seller at closing will be 9,711,432, as calculated pursuant to a 10-day volume weighted average share price as defined in the Merger Agreement
Advisors
Piper Sandler & Co. is serving as lead financial advisor to Atlas. Goldman Sachs & Co. LLC is also advising Atlas. Vinson & Elkins LLP is serving as legal advisor in association with the transaction.
Moelis & Company LLC is serving as exclusive financial advisor to Hi-Crush. Baker Botts LLP is serving as legal advisor in association with the transaction.
Conference Call
The Company will host a conference call to discuss the transaction along with financial and operational results on Tuesday, February 27, 2024 at 8:00am Central Time (9:00am Eastern Time). Individuals wishing to participate in the conference call should dial (877) 407-4133. A live webcast will be available at https://ir.atlas.energy/. Please access the webcast or dial in for the call at least 10 minutes ahead of the start time to ensure a proper connection. An archived version of the conference call will be available on the Company’s website shortly after the conclusion of the call.
The Company will also post an updated investor presentation titled “Hi-Crush Acquisition Presentation”, at https://ir.atlas.energy/ in the "Presentations” section under “News & Events” tab on the Company’s Investor Relations webpage prior to the conference call.
About Atlas Energy Solutions
Our company was founded in 2017 by long-time E&P operators and led by Bud Brigham. Our experience as E&P operators, combined with our unique asset base and focus on using technology to deliver novel solutions to our customers’ toughest challenges and mission-critical needs differentiates us as the proppant and logistics provider of choice in the Permian Basin.
Atlas is a leader in the proppant and proppant logistics industry and is currently solely focused on serving customers in the Permian Basin of
Our core mission is to maximize value for our stockholders by generating strong cash flow and allocating our capital resources efficiently, including providing a regular and durable return of capital to our investors through industry cycles. Further, we recognize that our long-term profitability is maximized by being good stewards of the environments and communities in which we operate. In our pursuit of this mission, we work to improve the processes involved in the development of hydrocarbons, which we believe will ultimately contribute to providing individuals with access to the energy they need to sustain or improve their quality of life in a clean, safe, and efficient manner. We take great pride in contributing positively to the development of the hydrocarbons that power our lives.
About Hi-Crush
Hi-Crush Inc., together with its subsidiaries, is a fully-integrated provider of proppant and logistics services for hydraulic fracturing operations, offering frac sand production, advanced wellsite storage systems, flexible last mile services, and innovative software for real-time visibility and management across the entire supply chain. Hi-Crush’s strategic suite of solutions provides US oil and gas operators and service companies with the ability to build safety, reliability, and efficiency into every completion. Clearlake Capital Group L.P. and Whitebox Advisors LLC are the controlling shareholders of Hi-Crush Inc.
Cautionary Statement Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements that are predictive or prospective in nature, that depend upon or refer to future events or conditions or that include the words “may,” “assume,” “forecast,” “position,” “strategy,” “potential,” “continue,” “could,” “will,” “plan,” “project,” “budget,” “predict,” “pursue,” “target,” “seek,” “objective,” “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements about the anticipated financial performance of Atlas following the transaction; the expected synergies and efficiencies to be achieved as a result of the transaction; expected accretion to free cash flow, cash flow per share, Adjusted EBITDA and earnings per share; expected production volumes; expectations regarding the leverage and dividend profile of Atlas following the transaction; expansion and growth of Atlas’s business; Atlas’s plans to finance the transaction; and the receipt of all necessary approvals to close the transaction and the timing associated therewith; our business strategy, our industry, our future operations and profitability, expected capital expenditures and the impact of such expenditures on our performance, statements about our financial position, production, revenues and losses, our capital programs, management changes, current and potential future long-term contracts and our future business and financial performance.
Although forward-looking statements reflect our good faith beliefs at the time they are made, we caution you that these forward-looking statements are subject to a number of risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks include but are not limited to: the completion of the transaction on anticipated terms and timing or at all, including obtaining any required governmental or regulatory approval and satisfying other conditions to the completion of the transaction; uncertainties as to whether the transaction, if consummated, will achieve its anticipated benefits and projected synergies within the expected time period or at all; Atlas’s ability to integrate Hi-Crush’s operations in a successful manner and in the expected time period; the occurrence of any event, change, or other circumstance that could give rise to the termination of the transaction; risks that the anticipated tax treatment of the transaction is not obtained; unforeseen or unknown liabilities; unexpected future capital expenditures; potential litigation relating to the transaction; the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events; the effect of the announcement, pendency, or completion of the transaction on the parties’ business relationships and business generally; risks that the transaction disrupts current plans and operations of Atlas or Hi-Crush and their respective management teams and potential difficulties in retaining employees as a result of the transaction; the risks related to Atlas’s financing of the transaction; potential negative effects of this announcement and the pendency or completion of the transaction on the market price of Atlas’s common stock or operating results; commodity price volatility, including volatility stemming from the ongoing armed conflicts between
Non-GAAP Financial Measures
This press release includes or references certain forward-looking financial measures not prepared in conformity with generally accepted accounting principles (“GAAP”), including free cash flow, cash flow per share, Adjusted EBITDA and earnings per share. Because Atlas provides these measures on a forward-looking basis, it cannot reliably or reasonably predict certain of the necessary components of the most directly comparable forward-looking GAAP financial measures, such as Gross Profit, Net Income, Operating Income, or any other measure derived in accordance with GAAP. Accordingly, Atlas is unable to present a quantitative reconciliation of such forward-looking, non-GAAP financial measures to the respective most directly comparable forward-looking GAAP financial measures. Atlas believes that these forward-looking, non-GAAP measures may be a useful tool for the investment community in comparing Atlas’s forecasted financial performance to the forecasted financial performance of other companies in the industry.
No Offer or Solicitation
This press release is for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to buy any securities, or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.
| (1) |
The Transaction excludes Hi-Crush’s Northern White Sand mining assets, as well as its extensive rail terminal network in the |
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| (2) | Oncore’s distributed mining network of mobile proppant production assets currently includes Oncore #1-7, which are currently producing sand and Oncore #8, which is scheduled to open during the second quarter of 2024. |
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| (3) | CFPS = Net income plus depreciation, depletion and amortization divided by shares outstanding ; EPS = Earnings per share. |
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Atlas Investor Contact
Kyle Turlington
T: 512-220-1200
IR@atlas.energy
Source: Atlas Energy Solutions Inc.
FAQ
What is the total value of the transaction between AESI and Hi-Crush Inc.?
What is the expected pro forma production capacity of the combined entities?
How much EBITDA contribution is anticipated from the acquired assets in 2024?
When is the transaction between AESI and Hi-Crush Inc. expected to close?
What are the estimated annual synergies from the acquisition by 2026?
