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Blackstone entity to combine with Osprey to form oil-weighted minerals company

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Blackstone entity to combine with Osprey to form oil-weighted minerals company

The special purpose acquisition entity Osprey Energy Acquisition Corp. agreed to acquire the assets of Royal Resources to create a combined oil and gas minerals company focused in the Eagle Ford and Austin Chalk shale plays.

Royal Resources is an entity that holds Eagle Ford Shale mineral interests and owned by funds managed by Blackstone Energy Partners and Blackstone Capital Partners LP. The combined company would be called Falcon Minerals Corp. and would have a total enterprise value of about $894 million, according to a June 4 news release.

Falcon Minerals' asset footprint in the Eagle Ford and Austin Chalk would include 251,000 gross unit mineral acres, with net production of 4,764 barrels of oil equivalent per day in the first quarter. The assets are expected to yield net production of about 6,352 Boe/d in 2018. ConocoPhillips, EOG Resources Inc. and Devon Energy Corp. are among the biggest operators on Falcon Minerals' acreage.

Upon deal closing, Falcon Minerals would reorganize such that its operating assets would be held in a separate limited partnership, to be called Falcon Minerals Operating Partnership. Blackstone would contribute Royal Resources' assets to the operating partnership for $400 million in cash, 40 million of the operating partnership's common units and an equal number of noneconomic class C common shares of Falcon Minerals. The securities may be converted into one class A common share of Falcon Minerals.

The combined company expects to generate cash margins of over 90% and plans to distribute most of its free cash flow via an initial cash dividend of 90 cents per share per year.

To fund the deal, Osprey agreed to sell about 11.5 million class A common shares at $10 per share in a private placement, for total proceeds of $115 million. The private placement is scheduled to close at the same time as the acquisition.

Osprey also reached a debt commitment agreement with lenders for a $500 million revolving credit facility with an initial borrowing base of $115 million, which would be made available at deal closing.

Falcon Minerals would be led by Osprey's management team, composed of Atlas Energy Group LLC executives Jonathan Cohen, Edward Cohen and Daniel Herz. Upon deal closing, Blackstone would maintain an ownership stake in the company of about 47% of its outstanding common stock, while Osprey stockholders would hold the remaining 53% stake.

Credit Suisse Securities (USA) LLC acted as capital markets advisers to Osprey. Wachtell Lipton Rosen & Katz acted as legal counsel to Osprey. Citi acted as financial adviser and capital markets adviser to Blackstone. Kirkland & Ellis LLP acted as legal counsel to Blackstone.