Riverstone, Retired Energy Executive Raise Nearly $1 Billion to Shop in Oil Patch
March 24 2017 - 3:01PM
Dow Jones News
By Ryan Dezember and Maureen Farrell
Investors Thursday handed a blank check for nearly $1 billion to
a New York investment firm and a retired energy CEO turned theology
student so they can hunt for an oil business to buy.
In staking Silver Run Acquisition Corp. II, investors are hoping
that Riverstone Holdings LLC, the energy-focused investment firm,
can repeat the success of a similarly named entity it launched last
year with another big-name oil executive.
That blank-check company, led by Mark Papa, who earlier built an
Enron Corp. castoff into one of the largest U.S. oil producers,
last year raised $500 million. It put the cash toward buying a pair
of closely held West Texas oil producers. Now known as Centennial
Resource Development Inc., its shares have been among the energy
industry's best performers, up 71% since the February 2016
listing.
Investors in the latest Riverstone endeavor are betting on the
second-act of James Hackett, who transformed Anadarko Petroleum
Corp. from an oil patch also-ran into one of the world's largest
energy explorers before retiring in 2013 to pursue a theology
degree at Harvard Divinity School.
Thursday's stock sale, which raised $900 million, was the
largest of its kind in a decade, according to Dealogic. It will
exceed $1 billion and tie the record for the largest blank-check
offering if the banks managing the deal exercise options to buy
shares, which they often do in such transactions.
Blank-check companies, also called special-purpose acquisition
companies, or SPACs, start with no assets and sell shares to raise
cash that they then use to make acquisitions. They've traditionally
attracted hedge funds willing to make speculative bets on specific
deal makers, but these days bankers say they're pitched to a
broader swath of investors.
Centennial's surging shares have made energy investors
particularly bullish on this style of deal making.
Kayne Anderson Capital Advisors LP, a Los Angeles private-equity
firm focused on pipelines, filed paperwork earlier this month to
raise as much as $402 million for a blank-check company. Last month
NGP, a Dallas firm known for staking wildcatters, said in filings
it would seek $460 million.
In a SPAC that could rival those of Riverstone for star power,
TPG is in talks to launch a blank check company headed by former
Occidental Petroleum Corp. CEO Stephen Chazen, according to people
familiar with the discussions.
Riverstone's Thursday offering more than doubled in size from
the $400 million the deal makers first proposed in securities
filings three weeks ago, showing investor enthusiasm but also
raising a question about how much demand will remain.
Mr. Hackett joined Riverstone as a partner right after leaving
Anadarko, juggling his studies with his duties as a member of the
committee that vets deals and makes investment decisions for the
firm.
In an interview Friday, he said the SPAC will look for
acquisitions in the U.S. and Canada, favor oil over natural gas and
consider pipeline businesses. He said he might be the CEO, but he's
also open to being chairman if the acquired company comes with
strong management that wants to stay on. Oil prices, roughly double
what they were at the depths of the bust, are in a sweet spot for
deal making, he said.
"If people feel the price is much too low and it will recover
quickly, which is where we were a year and a half ago, the
bid-offer spread gets too wide and activity starts to drop," the
63-year-old said. In those circumstances, he said, "people want to
hold onto things."
SPACs were a hallmark of the frothy days before the financial
crisis, but fizzled in its wake. Some big blank-check companies,
such as Nelson Peltz's Trian Acquisition I Corp., which raised $920
million in 2008, were unable to make acquisitions within the
customary two-year time period, forcing them to fold and give cash
back to investors.
SPACs have come back in recent years, though. Since 2015,
investors have given nine-figure blank checks to well-known deal
makers to pursue acquisitions in consumer products, tech and
chemicals. Last year, a SPAC acquired Twinkie-maker Hostess Brands
Inc. after it went public. Earlier this month a blank-check company
launched by TPG bought a chain of Caribbean resorts.
SPACs have their risks beyond the uncertainty of what businesses
they'll buy. Investors face the possibility that their cash will be
locked up for two years with no results. Energy investors face
particular challenges with oil prices hovering around $50 a barrel:
The number of regions where drilling is economical are limited and
prices for assets, such as drilling land in the Permian Basin in
West Texas, have soared.
SPACs offer some advantages to big energy investors, bankers
say. For one, they give private-equity firms the cash to pursue
large purchases without risking too much of their fund investors'
cash in any one deal. They are also a quick way to list closely
held companies and businesses carved out of big corporations on
stock exchanges where they can then raise additional cash to grow.
And sellers sometimes are willing to take discounts to cash out of
investments completely, rather than risk slower exits through their
own IPOs.
Write to Ryan Dezember at ryan.dezember@wsj.com and Maureen
Farrell at maureen.farrell@wsj.com
(END) Dow Jones Newswires
March 24, 2017 14:46 ET (18:46 GMT)
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