© 2018 The Texas Lawbook.
By Claire Poole
(June 5) – Merger Monday this week featured a large transaction in the oil patch and Texas lawyers from two different law firms did some of the work on it.
The Houston office of Paul Hastings served as special oil and gas counsel on Osprey Energy Acquisition Corp.’s purchase of properties in the South Texas Eagle Ford shale from Blackstone-backed Royal Resources for cash and shares, creating a renamed company valued at $894 million.
Paul Hastings’ team was led by energy M&A partner Jimmy Vallee – who has known Osprey’s management for around 12 years and worked with them on about 15 transactions – and energy M&A associate Isaac Griesbaum. Others who worked on the deal were partners Lindsay Sparks and Greg Nelson and associates Monica Diddell and Stephen Perry.
Kirkland & Ellis’ Houston office represented Blackstone Energy Partners and Blackstone Capital Partners. That group was led by corporate partners Rhett Van Syoc – who has advised Blackstone on past deals – and associate David Thompson along with a partner in the firm’s New York office. Capital markets partners Matt Pacey and Michael Rigdon, debt finance partner Andy Veit and tax partner Mark Dundon also pitched in.
Wachtell Lipton Rosen & Katz was overall legal counsel to Osprey and Ledgewood PC in Philadelphia also served as its special oil and gas counsel.
Blackstone will contribute the Royal Resources assets – which represent all of the private equity firm’s mineral interests in the Eagle Ford – in exchange for $400 million in cash and 40 million shares of the newly named company, Falcon Minerals Corp.
The private equity firm may earn up to 10 million more shares if Falcon’s stock trades at $12.50 per share for 30 days on a volume-weighted average basis and another 10 million if the stock trades above $15 per share for 30 days on a volume-weighted average basis.
Blackstone’s return on the sale approached 3 times on paper, although it will probably exceed that level as the stock appreciates and dividends are paid out, according to a source.
Senior managing director Angelo Acconcia in New York led the deal from Blackstone.
The transaction includes a $115 million PIPE, or private investment in public equity, commitment. It was completed pre-signing for new common stock at $10 per share from unnamed investment firms.
Credit Suisse was capital markets adviser to Osprey and sole placement agent on the PIPE. Citi was financial and capital markets adviser to Blackstone and was lead arranger and administrative agent on a fully underwritten reserves-based lending facility, which amounted to $500 million with an initial borrowing base of $115 million.
Osprey shareholders have to approve the deal, which is expected to close in September or October.
Osprey is an energy-focused special purpose acquisition company, or SPAC, that went public last year at $10 per share, raising $275 million. It was founded by Jonathan Z. Cohen, who also founded Atlas Energy Inc. and Atlas Pipeline Partners LP.
Activist investor Jana Partners, which tried – unsuccessfully – to stop EQT Corp.’s $6.7 billion acquisition of Rice Energy Inc., was an early Osprey investor.
SPAC deals have been on the rise recently as these entities have raised money in initial public offerings and have to use it within a set time period – usually two or three years – or be forced to dissolve and return the monies to shareholders.
In March, EnerVest sold its Eagle Ford and Austin Chalk assets to a SPAC, TPG Pace Energy Holdings, for $2.66 billion in cash and stock. Gibson Dunn & Crutcher advised EnerVest on that one, while Vinson & Elkins assisted TPG.
Falcon will own mineral, royalty and over-riding royalty interests covering 251,000 gross unit acres in the Eagle Ford and Austin Chalk in Karnes County, DeWitt County and Gonzales County.
The parties claim the combination will create the first publicly traded minerals company with oil-weighted assets concentrated in the core-of-the-core of the Eagle Ford Shale.
The properties are expected to generate net production of 6,352 barrels of oil equivalent per day on average this year, a 33 percent increase over the first quarter.
The company will be led by Osprey’s management team, including Cohen, Edward Cohen and Daniel Herz.
Blackstone will own about 47 percent of Falcon and Osprey shareholders will hold 53 percent.
Falcon will have 11 people on its board, including six directors appointed by Blackstone, two appointed by the holder of Osprey’s founder shares and three additional independent directors.
The parties expect Falcon to have 85 percent of its reserve value in long-lived, undeveloped acreage with 3,000 locations that generate internal rates of return to operators of more than 100 percent. The three largest operators on Falcon Minerals’ lands are ConocoPhillips, EOG Resources and BHP Billiton/Devon Energy, which contribute 90 percent of the reserve value.
Falcon expects to generate cash margins above 90 percent and distribute nearly all of its free cash flow. It anticipates paying an initial cash dividend after closing of 90 cents per share per year.
Falcon said the Eagle Ford and Austin Chalk areas benefit from their proximity to the U.S. Gulf Coast market and existing infrastructure, supporting a premium price for crude oil sales relative to West Texas Intermediate prices.
Founded in 2012, Houston-based Royal Resources wanted to go public in 2015, filing a prospectus with the Securities and Exchange Commission with a $100 million placeholder. But it ended up withdrawing it the following year.
Kirkland’s Pacey and then-partner Eric Willis – who is now general counsel at Amplify Energy (which emerged from the Memorial Production Partners’ bankruptcy last year) – were advising the company on that offering. The underwriters, which included Credit Suisse, Citigroup and Morgan Stanley, were using Baker Botts partner Josh Davidson and then-partner Hillary Holmes, who is now at Gibson Dunn.
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