The poorly performing oil and gas industry is persona non grata among investors right now. But some creatively crafted energy deals managed to get done in 2019, becoming the highlight of merger and acquisition activity in Texas and involving Texas lawyers last year.
Some of the deals were intended to make large companies even larger, bringing on those economies of scale. Some were meant to boost growth prospects for the days when companies’ wells ran dry. Still others were to bring in much needed cash when the financial markets were shut tight.
There was a lot of drama around some of the deals, from strong opposition to threatened proxy fights to revised terms to get the deals closed. Private equity firms came into the industry in a grand way and some even managed to exit.
But 2019 also saw bank consolidation continue in the state, as it did in the rest of the country, and some notable Texas brand icons were sold off.
It’s a subjective exercise, of course, but here – in no particular order (except for maybe the first one) – are 10 of what The Texas Lawbook views as the most important deals in the state last year.
1. Occidental Petroleum’s $55B acquisition of Anadarko
Occidental Petroleum’s acquisition of Anadarko Petroleum had all the ingredients of an interesting deal. It was big money: $55 billion, making it not only the largest deal in Houston last year but the largest takeover of an oil and gas deal in a decade. It was the result of a bidding war with Chevron Corp., which in the end decided not to offer any more than its original $65 per share bid (Oxy’s was $76). And it had opposition from billionaire activist investor Carl Icahn, who called the deal “misguided” and a “fiasco” due to its high premium and expensive $10 billion financing from billionaire Warren Buffett.
The deal closed anyhow in August after Anadarko’s shareholders overwhelmingly approved it (the transaction didn’t require a vote from Oxy stockholders given the Buffett funding). “With Anadarko’s world-class asset portfolio now officially part of Occidental, we begin our work to integrate our two companies and unlock the significant value of this combination for shareholders,” CEO Vicki Hollub said at the deal’s completion.
Part of that work is selling $15 billion in assets to pay down debt taken on as part of the deal so as to strengthen its balance sheet (it recently shed two of its campuses in the Houston area to Howard Hughes Corp. for $565 million). Icahn ended up selling a third of his Oxy shares but reports last month said he’s forging ahead with a proxy battle to replace Oxy’s directors.
Notwithstanding its battles, the deal highlighted 2019’s consolidation in the shale patch, particularly in the Permian Basin, data and analysis provider Enverus said. “The deal is in the ballpark of Exxon’s 2009 acquisition of XTO as the most spent on shale,” the firm said.
Oxy’s general counsel Marcia Backus – a Vinson & Elkins alum – led the deal with the help of Cravath, Swaine & Moore partner Faiza Saeed in New York. V&E counseled Anadarko, including chairman Mark Kelly and partner Lande Spottswood. Anadarko’s general counsel was Amanda McMillian.
2. Callon Petroleum’s $723M purchase of Carrizo
While quite small compared with the Occidental-Anadarko tie-up, Callon Petroleum Co.’s $723 million purchase of Carrizo Oil & Gas Inc. was yet another example of a much needed consolidation deal in the oil and gas industry at a time when investors are demanding better returns. It also was contentious: Paulson & Co. and other investors complained about the 25% premium Callon was paying and the fact that the deal included less valuable properties in South Texas’ Eagle Ford Shale.
The deal’s stock consideration ended up being adjusted downward by $500 million, which led Callon shareholders to clear the deal and the company to close it right before Christmas. The transaction left Callon stockholders with 58% of the combined company and Carrizo’s 42%, versus 54% and 46% previously.
“Together with Carrizo, we are creating a leading oil and gas company that is positioned to accelerate the achievement of our stated goals regarding increasing returns on capital and sustainable free cash flow generation,” Callon CEO and president Joe Gatto said at the closing.
Baker Botts partners Gene Oshman and Jim Marshall led the team advising Carrizo, whose general counsel – and development chief – was Gerry Morton. Kirkland & Ellis partners Sean Wheeler and Doug Bacon led the efforts for Callon, whose GC is Michol Ecklund.
3. WPX’s $2.5B acquisition of EnCap-backed Felix
Oil and gas transactions may dominate Texas dealmaking, but WPX Energy’s $2.5 billion acquisition of EnCap Investments-backed Felix Energy in December was one of the first in a while of a public buyer betting on growth in the industry – and one that was received warmly by Wall Street.
The deal also was considered a positive for private equity firms, who have plowed a lot of money into the sector only to find it difficult to exit. “Besides being the largest deal of Q4 and fourth largest deal of 2019, the acquisition of a premier private equity position in the Permian shows there are still exits available for the ‘built to sell’ model of private equity portfolio companies,” Enverus said.
The growth WPX was seeking is expected to come from Felix’s oily properties in West Texas’ and New Mexico’s Delaware Basin at what analysts said was an attractive price for WPX, which would vault into “large cap territory.” The parties expect to close the transaction early in the second quarter of this year if it’s cleared by WPX shareholders, which isn’t expected to be an issue.
Weil, Gotshal & Manges advised WPX with a team co-led by Dallas partners Glenn West and James Griffin. WPX’s in-house counsel included general counsel Dennis Cameron and VP and corporate secretary Stephen Brilz. Vinson & Elkins assisted Felix with a team led by partners John B. Connally, Doug McWilliams and Matt Strock in Houston. Simpson Thacher & Bartlett advised WPX on the financing, including Houston partners Matthew Einbinder and Brian Rosenzweig.
4. C&J’s $1.8B merger with Keane and Superior split-apart deal with Forbes
The oilfield services industry also has been challenged in this age of returns-driven drilling, which has led such companies to join forces to become stronger and cut costs given economies of scale.
Two important deals fell into that category in 2019: C&J’s $1.8 billion merger with Keane, which analysts said was the oilfield service sector’s first consequential step to address a highly fragmented and non-differentiated business; and Superior Energy Services’ sale its U.S. service rig, coiled tubing, wireline and other business lines to Forbes Energy Services Ltd., will create a new publicly traded company for U.S. completion, production and water solutions.
The C&J-Keane merger – which, when it closed in October, created the third largest U.S. pressure pumper after giants Halliburton and Schlumberger – was renamed NexTier Oilfield Solutions Inc. and is 50/50 owned by Keane and C&J shareholders. Analysts said that even though C&J stockholders didn’t get a hefty premium for their shares, the combination will benefit from $100 million in expected cost synergies.
The Superior-Forbes deal has been called a novel approach to the inability to sell assets in today’s climate and tough financing markets overall. Superior owns a 65% economic interest in the combination while Forbes shareholders hold 35%. Analysts say the deal should help Superior cut the amount of its 2021 notes outstanding by up to $500 million.
Kirkland & Ellis counseled C&J with a team led by transactional partners Adam Larson, Doug Bacon, Kim Hicks and Alex Rose. Keane used Schulte Roth & Zabel as its legal advisor and Simpson advised the Keane board’s special committee, including partners Christopher May and Breen Haire in Houston. Keane’s general counsel was Kevin McDonald, who became GC of the combination, and C&J’s GC was Danielle Hunter.
Latham & Watkins represented Superior on the Forbes deal, including partners Ryan Maierson, John Greer, Jesse Myers and Nick Dhesi. Forbes used Fried, Frank, Harris, Shriver, & Jacobson out of New York and Winstead counseled the special committee of Forbes’ board (shareholder R. Clyde Parker in The Woodlands). Simpson advised the financing sources, including Houston partners Brandan Still and Robert Rabalais.
5. Buckeye’s $10.2B take-private by IFM and Energy Transfer’s $5.1B acquisition of SemGroup
Midstream deals – those involving assets that gather, process and transport oil and gas products – proliferated in 2019 as the need for infrastructure still proved to be great given the growth of the industry. Two transactions stood out given their size and significance: Buckeye Partners’ $10.2 billion take-private by Australia’s IFM Investors, which analysts said was a positive affirmation for U.S. infrastructure assets given the multiple; and Energy Transfer’s $5.1 billion acquisition of Tulsa-based SemGroup Corp., which represented a switch from the Dallas buyer’s capital discipline and deleveraging strategy.
Buckeye hired Cravath, Swaine & Moore to advise on corporate matters and Vinson & Elkins for tax (partner Ryan Carney). IFM used White & Case for corporate (Houston partner Chad McCormick), Paul Hastings for tax (Houston partner Greg Nelson) and Baker Botts for due diligence (Houston partner Ned Crady, who is now at Paul Hastings). The deal was completed in November.
Latham & Watkins assisted Dallas-based Energy Transfer with Houston partners Bill Finnegan and Debbie Yee (who is now at Kirkland) while Kirkland advised SemGroup led Houston partners Sean Wheeler and Doug Bacon. Tom Mason led the legal work in-house at Energy Transfer while Susan Lindberg did so from SemGroup, both of whom carried the general counsel title (Mason remained general counsel of Energy Transfer). That deal closed in December.
6. Securitizations by Raisa Energy and Diversified Gas & Oil Corp.
Financing was tight for the oil and gas industry in 2019, so companies looked for other ways to bring capital in to develop their properties. One way was “securitization,” or converting all or part of an asset into a financial instrument and selling it to investors to raise cash.
The initial one had lawyers talking: the “first-rated” securitization of oil and gas wellbore interests issued by EnCap Investments-backed Raisa Energy in September.
Raisa didn’t reveal a lot of details, but The Wall Street Journal reported that its bonds pay 6% interest on the best-quality wells with higher rates on riskier assets, citing sources. The newspaper said the bonds’ structure is similar to securities backed by mortgages and auto loans but pose potential risks because projecting the long-term output from shale wells remains “an inexact science.”
Another similar deal popped up in November, when Diversified Gas & Oil Corp. announced that it had inked the “first-of-its-kind” securitization of operated proved-developed oil and gas properties.
Neither of the deals disclosed terms, but they were interesting, nonetheless, and attorneys say more are on the way if the financial markets remain tight and parties can get the terms right.
Latham & Watkins advised Diversified, including Houston partners Jeff Muñoz, David Miller and Robin Fredrickson. Orrick advised the noteholders, including partners Jonathan Ayre and Darrell Thomas, who also worked on the Raisa deal in the same capacity.
A group of Kirkland & Ellis attorneys assisted Raisa, including Houston partners Anthony Speier and Chad Smith and Chicago partner Jeff O’Connor. They were aided by associates R.J. Malenfant and Patrick Lingwall in Houston and Joel Weinberger in Chicago. Sidley Austin counseled Munich Re on its purchase of the Diversified notes with a team led by Houston partner Jim Rice.
7. Hilcorp’s $5.6B purchase of BP’s Alaskan assets
Houston billionaire Jeffery Hildebrand isn’t afraid of big deals: In 2017, his company Hilcorp inked a joint venture with the Carlyle Group to buy oil and gas properties in the San Juan Basin from ConocoPhillips for $2.6 billion. He accomplished an even bigger one in 2019 when he agreed to buy all of BP plc’s Alaskan assets for $5.6 billion.
It wasn’t really a surprise: As The Texas Lawbook previously reported, BP originally wanted to sell its Alaska interests to Apache Corp., which wasn’t interested. BP also had indicated that it might announce $4 billion to $5 billion in transactions in 201 and this deal helped it meet that goal, analysts said.
The buyer also wasn’t so surprising: Hilcorp already was the largest private operator in Alaska, having worked there since 2012. And back in 2014, the company – also the largest privately held oil producer in the U.S. – had purchased interests in four operated Alaska North Slope oilfields from BP. The latest deal doubles Hilcorp’s production to around 150,000 barrels of oil equivalent per day.
Baker Botts’ Houston office advised BP, including energy projects partners Dan Mark and Craig Vogelsang. Kirkland assisted Hilcorp led by corporate partners John Pitts, Anthony Speier, Jhett Nelson and Chris Heasley. BP’s in-house counsel was led by senior attorney Jane Hammond in Houston and Hilcorp’s in-house counsel was general counsel Michael Fertitta and deputy general counsel Spencer Kerr.
8. Texas Capital’s $5.5B merger with Independent and Prosperity Bancshares’s $2.1B acquisition of Dallas’ LegacyTexas
Texas isn’t all about oil and gas, of course, and banking deals continued in the state, following the trend of consolidation of the industry across the country since the Trump Administration cut taxes and eased regulations.
The biggest was Texas Capital Bancshares’ $5.5 billion announced merger in December with Independent Bank Group, which created the largest Texas-headquartered bank by Texas deposits and the top Texas-based super regional bank.
The deal was preceded in June by Houston-based Prosperity Bancshares Inc.’s $2.1 billion acquisition of Dallas’ LegacyTexas Financial Group, which was the second largest bank merger in Texas’ history at the time. It created the second largest bank by deposits headquartered in the state – and gave Prosperity a bigger presence in North Texas.
Texas Capital and Independent both went with non-Texas lawyers as primary counsel, including from Sullivan & Cromwell for Dallas-based Texas Capital and Wachtell, Lipton, Rosen & Katz for McKinney-based Independent. Alston & Bird assisted Sullivan & Cromwell as counsel for Texas Capital on the deal, including partner Sandy Brown and associate Anna Chong in Dallas.
Willkie Farr & Gallagher lawyers in New York counseled Texas Capital CEO and president C. Keith Cargill, who will become the merged company’s special advisor on talent and client retention and strategic initiatives. Kelly Rentzel led the deal as general counsel for Texas Capital while Mark Haynie did so in the same capacity at Independent.
The merger has to clear regulators and both sets of shareholders but the parties expect to close the deal in the middle of this year.
Prosperity general counsel Charlotte Rasche led the LegacyTexas deal with help from associate general counsel Annette Tripp and legal counsel Jessica Lee Freedson, turning to Bracewell partners Will Anderson and Jason Jean in Houston as outside counsel. LegacyTexas’ legal work was led by then-COO and general counsel Scott Almy, who tapped attorneys from Shapiro Bieging Barber Otteson out of Denver. That deal closed Nov. 1.
9. Whataburger’s sale to BDT Capital and Texas Monthly’s sale to Enterprise heiress
Two iconic Texas brands also agreed to sell themselves: The Dobson family sold fast food chain Whataburger to Chicago private equity firm BDT Capital Partners for undisclosed terms (reports had put the San Antonio-based chain’s value at $6 billion) and Paul Hobby’s Genesis Park sold Texas Monthly to billionaire Houston heiress Randa Duncan Williams, also for an undisclosed amount.
The Dobson family, which founded Whataburger 69 years ago, kept a minority stake in the business and Tom Dobson stayed on the board, along with former Whataburger president and CEO Preston Atkinson.
Williams, whose late father Dan Duncan founded pipeline giant Enterprise Products Partners, will be Texas Monthly’s fourth owner since Mike Levy founded the magazine in 1973. Levy sold the publication in 1998 to Indiana-based Emmis Communications, which then shed it to Hobby’s Genesis in 2016 for $25 million.
Whataburger’s general counsel Michael Gibbs tapped Jackson Walker to assist the company on the sale, including deal team leaders Patrick Tobin, a partner in San Antonio, and Brandon Janes, a partner in Austin. Norton Rose Fulbright partner Daryl Lansdale, who offices out of San Antonio and Houston, counseled BDT with help from Dallas partner Brandon Byrne.
Locke Lord represented Williams led by partner Joe Perillo while Baker Botts partner David Peterman assisted Genesis. Peterman, who is now at Paul Hastings, had advised Genesis on its 2016 purchase of the magazine when he was at Norton Rose Fulbright.
10. Jerry Jones’ $475M investment in Comstock to help buy Denham’s Covey Park for $2.2B and BKV picking up Devon’s properties in the Barnett Shale for $770M
Finally, two investors made big contrarian bets on the prospects for natural gas that grabbed some headlines.
In June, the Dallas Cowboys’ billionaire owner Jerry Jones invested another $475 million in Comstock Resources to help it buy Denham Capital-backed Covey Park for $2.2 billion, bringing his total investment to $1.1 billion. “[It’s] another step toward completing my vision to create an industry leading natural gas company,” Jones said at the time.
And in December, Banpu Kalnin Ventures, or BKV, a unit of Thailand’s Banpu Pcl, bought Devon Energy’s properties in North Texas’ Barnett Shale for $770 million.
Comstock’s deal for Covey, which closed in July, made it the leader in the Haynesville Shale natural gas play in east Texas and north Louisiana while BKV’s transaction marked Devon’s completion of its transformation into a U.S. oil growth business (that deal should close this year).
Locke Lord represented Comstock with the team led by Dallas partner Jack Jacobsen and Houston partner Michael Blankenship. Gibson Dunn & Crutcher represented Jones and his companies (Dallas and Houston partner Doug Rayburn and Dallas partner Jonathan Whalen) while Vinson & Elkins represented Covey Park (partners partners Doug McWilliams and Shamus Crosby). The Dallas Cowboys’ general counsel is Jason Cohen.
Willkie Farr & Gallagher represented BKV with a team led by partner Michael De Voe Piazza in Houston. Vinson & Elkins counseled Oklahoma City-based Devon with a group headed by Houston partner John B. Connally.