This oil and natural gas company is selling some assets, and our contributor thinks this may result in a hefty one-time special dividend.
Riviera Resources, Inc. (RVRA)
From The Stock Spin-off Investing Newsletter
Roan Resources (Blue Mountain anchor tenant) announced that it will be sold for $1.50 to Citizen Energy, a private equity backed company. This is positive news as it provides closure to Roan’s strategic review. Now that Roan’s strategic review is complete, Blue Mountain—a Riviera Resources, Inc. (RVRA) subsidiary—can proceed with its own strategic review. My sense is that management is trying to solicit a minority investment in Blue Mountain to highlight its current undervaluation. If this were to occur, it would be a significant positive.
As noted in the excerpt from the company’s press release below, RVRA announced that it had reached an agreement to sell its assets in the Hugoton Basin for $295M. The press release noted that management had not finalized what it will do with the proceeds, but hinted that a tax free dividend is possible (I think probable). This could result in a $4.90 special dividend. My conservative valuation increases from $15.58 to $16.66 with the added catalyst that shareholders will likely receive a $4+ special tax free dividend in Q4 2019. Longer term, I think the stock is worth $25+.
Excerpt from Riviera’s press release August 28, 2019
“Riviera Resources, Inc. (RVRA) announces it has signed a definitive agreement to sell its interest in properties located in the Hugoton Basin to an undisclosed buyer for a contract price of $295 million, subject to closing adjustments. This transaction represents a complete basin exit for the Company.
“After closing the transaction, the Company will continue to own upstream assets in East Texas, North Louisiana, the Anadarko Basin and the Uinta Basin. Additionally, the company continues to grow its midstream business, Blue Mountain Midstream, LLC. Based on the closing price of the Company’s common stock on August 23, 2019, the Hugoton transaction contract price represented approximately 45% of Riviera’s market capitalization.
“The estimated net proceeds from the sale are expected to be added to cash on the Company’s balance sheet. The Board and management will determine the use of proceeds, which consistent with past history may include a significant return of capital to shareholders.”
Richard Howe, CFA, The Stock Spin-off Investing Newsletter, www.stockspinoffinvesting.com, 617-750-7454, October 4, 2019