TPG Pace Energy Holdings’ $2.66 Billion Business Combination With EnerVest’s South Texas Division

Credit Suisse Securities (USA) LLC acted as financial advisor to TPGE, Deutsche Bank Securities Inc. and Goldman, Sachs & Co. acted as capital markets advisors to TPGE; Vinson & Elkins L.L.P. acted as legal counsel to TPGE. Citigroup acted as financial advisor and capital markets advisor to EnerVest; Gibson, Dunn & Crutcher LLP acted as legal counsel to EnerVest.

TPG Pace Energy Holdings Corp. (“TPGE”) (NYSE: TPGE, TPGE.U, TPGE.WS), an energy-focused special purpose acquisition entity led by former Occidental Petroleum Corporation CEO Steve Chazen, has entered into definitive agreements with certain funds managed by EnerVest, Ltd (“EnerVest”) to acquire the oil and gas assets within EnerVest’s South Texas Division for approximately $2.66 billion in cash and stock. As part of the transaction, TPGE and EnerVest are partnering to create Magnolia Oil & Gas Corporation (“Magnolia”), a new company led by Chazen who will serve as Magnolia’s full-time Chairman, President and CEO. EnerVest will retain a significant ownership stake in Magnolia. The transaction is subject to approval by the TPGE shareholders and other customary closing conditions, and the new company will trade on the NYSE under a new ticker upon closing, which is expected to occur late in the second quarter of 2018.

The formation of Magnolia creates a large-scale, pure-play South Texas operator with top-tier Eagle Ford and Austin Chalk asset positions with more than 40,000 boe per day of production. Magnolia will acquire EnerVest’s approximately 360,000 total net acres in South Texas, which consists of approximately 14,000 net acres in one of the most prolific sections of Karnes County and 345,000 net acres in the emerging, high-growth potential Giddings Field. The acreage position is almost entirely held by production, and the production from the combined asset base is heavily weighted toward oil. We believe the combination of superior operating margins and attractive new well economics will allow Magnolia to deliver high-return, self-funded production growth and generate substantial free cash flow after drilling capital. In addition to Chazen’s leadership, Magnolia will benefit from the corporate support, experience and local knowledge of EnerVest’s South Texas team, which will continue to operate the assets following the closing of the transaction under a long-term services agreement with EnerVest.

TPG Pace Group and Chazen formed TPGE in early 2017 with the intent to build a large scale, focused oil and gas business with a meaningful production base, strong free cash flow and a disciplined financial return philosophy. Following its IPO in May 2017, TPGE began its search for attractive assets that would benefit from Chazen’s operating approach and succeed as a public company with low leverage. A veteran of the oil and gas sector, Chazen has an established track record with more than 25 years of experience implementing disciplined growth strategies and generating shareholder value in the public markets. Upon closing, Chazen will be joined by his long-time colleague and business partner, Christopher Stavros, who will serve as the company’s Chief Financial Officer. Most recently, Stavros served as CFO of Occidental Petroleum Corporation. Chazen and Stavros share the philosophy of generating attractive full-cycle returns while maintaining a strong balance sheet with low leverage.

The transaction was unanimously approved by the board of TPGE and remains subject to the approval of TPGE shareholders and the satisfaction or waiver of other customary conditions.

Upon closing, Magnolia will maintain a seven person board, which will include Steve Chazen as Chairman, two appointees named by each of TPGE and EnerVest and two additional independent directors.

Vinson & Elkins advised TPG Pace Energy Holdings Corp. with a team including Keith Fullenweider (Picture) and John Grand with assistance from partners Doug McWilliams, David Wicklund and Mark Brazzil and associates Danielle Patterson, Benji Barron and Robert Hughes.

 

Involved fees earner: Keith Fullenweider – Vinson & Elkins LLP; John Grand – Vinson & Elkins LLP; Douglas McWilliams – Vinson & Elkins LLP; Benjamin Barron – Vinson & Elkins LLP; Danielle Mangrum Patterson – Vinson & Elkins LLP; Robert Hughes – Vinson & Elkins LLP; David Wicklund – Vinson & Elkins LLP; Mark Brazzil – Vinson & Elkins LLP;

Law Firms: Vinson & Elkins LLP;

Clients: TPG Pace Energy Holdings Corp.;

 

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Author: Ambrogio Visconti