Occidental Petroleum Corp.'s former CEO Steve Chazen is jumping back into Texas' oil and gas industry heading a new company that plans to buy EnerVest Ltd.'s Eagle Ford and Austin Chalk assets for $2.66 billion in cash and stock.
Chazen will lead Magnolia Oil and Gas Corp., which is backed by TPG Pace Energy Holdings Corp. and will go public as part of the deal. EnerVest's compensation will include about $1.2 billion in cash and about 120 million shares of common stock in the new company, according to a March 20 release.
At closing, expected late in the second quarter, EnerVest funds will own 51% of Magnolia's common stock, while TPG Pace Energy public investors will own 43% of shares. The remainder will be owned by TPG.
Magnolia will acquire EnerVest's approximately 360,000 total net acres in South Texas with more than 40,000 barrels of oil equivalent per day of net production. The company's production base is 62% oil and 78% liquids. The new entity's estimated 2018 EBITDA is $513 million and estimated 2018 free cash flow is approximately $240 million after capital investment.
Former Occidental Petroleum CFO Christopher Stavros will serve as Magnolia's CFO. The new entity's board will include seven members, including Chazen, two appointees named by both TPG Pace and EnerVest and two additional independent directors. Under a long-term services contract, EnerVest's South Texas team will also continue to operate the acquired assets.
"Our objective is to maximize shareholder returns by generating steady production growth, strong pre-tax margins in excess of industry norms and significant free cash flow," Chazen said in a release. "Assuming moderate commodity prices, we plan to invest less than 60% of cash flow to fund a drilling program that consistently delivers more than 10% annual production growth."
The agreement is subject to TPG Pace Energy shareholders approval and other closing conditions. After completion, EnerVest may earn up to an additional 17 million shares if certain operating or price targets are met.
Credit Suisse Securities (USA) LLC acted as financial adviser to TPG Pace Energy, which Deutsche Bank Securities Inc. and Goldman Sachs & Co. acted as its capital markets advisers and Vinson & Elkins LLP acted as legal counsel. Citigroup acted as financial adviser and capital markets adviser to EnerVest, while Gibson Dunn & Crutcher LLP acted as its legal counsel.