Exit: EnCap-backed Grenadier II announces deal to sell to Pure Acquisition SPAC

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[Context: On November 27, EnCap-backed Grenadier Energy Partners II announced deal to be acquired by a SPAC, Pure Acquisition (NASDAQ: PACQ, PACQU, PACQW), for $465m in cash, 15.7m shares of common stock (trading at >$10/share), and 2.5m warrants. Grenadier II holds acreage in Howard County in the Permian Basin. Further details, advisors and related links are below.]


GRENADIER ENERGY PARTNERS  | ENCAP

Pure Acquisition Corp. Announces Business Combination Transaction

FORT WORTH, Texas, Nov. 27, 2019 (GLOBE NEWSWIRE) — Pure Acquisition Corp. (“Pure”) (NASDAQ: PACQ, PACQU, PACQW), an oil and gas exploration and production focused special purpose acquisition entity, today announced that it has entered into a Business Combination Agreement (the “HPK Business Combination Agreement”) with, among others, HighPeak Energy, Inc. (“HighPeak Energy”), a wholly owned subsidiary of Pure formed to effect the business combination, and certain affiliates of HighPeak Energy Partners, LP (the “HighPeak Funds”), and a Contribution Agreement (the “Grenadier Contribution Agreement” and, together with the HPK Business Combination Agreement, the “Business Combination Agreements”) with, among others, HighPeak Energy and Grenadier Energy Partners II, LLC (“Grenadier”).

Pursuant to the Business Combination Agreements, a wholly owned subsidiary of HighPeak Energy will merge with and into Pure, with Pure surviving as a wholly owned subsidiary of HighPeak Energy and Pure’s existing stockholders receiving one share of common stock of HighPeak Energy for each share of Pure’s common stock owned thereby. HighPeak Energy will then acquire certain assets from the HighPeak Funds in exchange for shares of its common stock and certain assets from Grenadier in exchange for shares of its common stock, warrants to purchase shares of its common stock and cash (such transactions referred to collectively as, the “business combination”). After giving effect to the business combination, HighPeak Energy will conduct its business as an independent oil and natural gas company engaged in the acquisition, development and production of oil, natural gas and NGL reserves with assets located in the northeastern part of the oil-rich Midland Basin. Upon completion of the business combination, HighPeak Energy intends to list its common stock and warrants for trading on the New York Stock Exchange (the “NSYE”) or the Nasdaq Capital Market (the “Nasdaq”) under the symbols “HPK” and “HPKWS.” Pure’s securities are expected to be delisted from the Nasdaq at closing of the business combination concurrently with the NYSE or Nasdaq listing for trading of HighPeak Energy’s securities.

The transaction was unanimously approved and recommended to Pure’s board of directors (the “Board”) by a special committee consisting of independent directors of Pure’s Board, and is expected to close in the first quarter of 2020, subject to certain closing conditions, including receipt of the requisite shareholder approval.

Jack Hightower, HighPeak Energy’s Chairman, President and CEO, commented, “We’re extremely excited about this transaction as this area provides for one of the best on-shore domestic U.S. opportunities in regards to accelerated near-term cash flow growth, single well economics due to the high oil production content, industry leading full-cycle operating margins and the economies of scale we expect to achieve in cost savings attributable to drilling & completion operations, production facilities and infrastructure due to the contiguous nature of the asset base. The HighPeak management team is confident in our ability to successfully implement the proposed development drilling program and achieve the anticipated growth profile of the company.”

Patrick Noyes, Grenadier’s Chairman, President and CEO, said, “We are excited to reach this agreement with HighPeak Energy in the current market and help form a new strategic pure play company focused on a key area of the Midland basin that has been significantly de-risked over the past year. Our Grenadier team has performed exceptionally well in both executing on our active drilling and completion program along with supporting this key transaction with HighPeak. As a significant shareholder going forward, we are excited about the continued growth and upside potential of this combined asset.”

HighPeak Energy Operating Highlights (Pro Forma for Proposed Business Combination)

HighPeak Energy’s Chairman, President & CEO, Jack Hightower, provides 48 years of exploration and production (“E&P”) experience including years of executive leadership. In addition to Mr. Hightower, the senior management team provides extensive experience in various roles within the E&P industry that will provide HighPeak Energy with the synergy and capability needed in its business and operations

  • Contiguous position of greater than 71,000 net acres located primarily in Howard County, with greater than 90% operated, provides the sale and depth of inventory to efficiently develop
  • Anticipated net production of approximately 12,000 barrels of oil equivalent per day, projected as of the year ended 20191
  • High oil mix of more than 80% supports a strong operating margin
  • Approximately 875 (725 net) drilling locations identified in either the Wolfcamp A and/or Lower Spraberry formations that are planned to be developed with mostly two-mile laterals
  • Planned pad development in 2020 with four operated rigs reduces the impact of parent/child degradation
  • Significant recent offset and non-operated activity is quickly de-risking the acreage position

Business Combination

Pursuant to the HPK Business Combination Agreement, HighPeak Energy will acquire, in exchange for 71,150,000, as adjusted in accordance with the HPK Business Combination Agreement, shares of HighPeak Energy common stock, all of the outstanding interests in HPK Energy, LP (“HPK”), which holds certain rights, title and interests in oil and natural gas assets and cash, as well as the right, pursuant to a Contribution Agreement between Grenadier and a subsidiary of HPK, to acquire substantially all of the assets of Grenadier for aggregate consideration of 15,760,000 shares of HighPeak Energy common stock, 2,500,000 warrants to purchase HighPeak Energy common stock and approximately $465 million in cash, subject to purchase price adjustments.

The closing of the business combination is subject to the requisite approval of Pure’s stockholders and the satisfaction of customary conditions. The business combination is expected to close in the first quarter of 2020. The description of the business combination contained herein is only a summary and is qualified in its entirety by reference to the Business Combination Agreements relating thereto.

Advisors

With respect to the HPK Business Combination Agreement, Jefferies LLC acted as financial advisor, Hunton Andrews Kurth LLP acted as legal counsel to the special committee of the board of directors of Pure, Vinson & Elkins L.L.P. acted as legal counsel to the HighPeak Funds and Latham & Watkins LLP acted as legal counsel to Jefferies LLC. With respect to the Grenadier Contribution Agreement, Jefferies LLC acted as financial advisor, Thompson & Knight LLP acted as legal counsel to the HighPeak Funds and Vinson & Elkins L.L.P. acted as legal counsel to Grenadier.

Investor Presentation

An investor presentation covering additional information regarding the business combination will be filed by Pure in a current report on Form 8-K.

About Pure Acquisition Corp.

Pure is a blank check company formed in Delaware on November 13, 2017 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. Pure’s units were listed for trading on the Nasdaq under the symbol “PACQU” on April 13, 2018. On May 29, 2018, Pure’s Class A common stock and warrants began trading on the Nasdaq under the symbols “PACQ” and “PACQW,” respectively.

About HighPeak Energy

HighPeak Energy is an independent oil and natural gas company engaged in the acquisition, development and production of oil, natural gas and NGL reserves. HighPeak Energy’s assets, after giving effect to the potential business combination, will be primarily located in Howard County, Texas, which lies within the northeastern part of the oil-rich Midland Basin. HighPeak Energy is led by its Chairman, CEO and President, Jack Hightower, an industry veteran with over 48 years of experience in the oil and natural gas industry, primarily in the Permian Basin managing multiple E&P platforms and generating strong returns despite industry cycles by consistently applying a disciplined, risk-adjusted approach designed to balance capital preservation with value creation. HighPeak Energy’s objective is to maximize returns by generating rapid production growth initially followed by steady production growth with strong margins and cash flow. HighPeak Energy also intends to generate attractive full-cycle returns on capital employed.

About HighPeak Funds and Grenadier

The HighPeak Funds are entities affiliated with HighPeak Energy Partners, LP, with operations in Howard County, Texas, lying in the northeastern part of the oil-rich Midland Basin.

Grenadier was formed in 2012 with the purpose of acquiring, exploring and developing oil and natural gas properties. Grenadier’s operations and assets are also located in Howard County, Texas, in the northeastern part of the oil-rich Midland Basin with a focus on its strategy to profitably develop long-lived oil and natural gas reserves by applying cutting edge technology through the drilling, completion and production phases of its wells. Since inception, Grenadier has maintained a disciplined, opportunistic approach to acquisitions where it seeks to find long-life reserves that can be developed with low risk and moderate capital requirements. Grenadier is backed by EnCap Investments L.P. and Kayne Anderson Capital Advisors, L.P.

Since 1988, EnCap Investments L.P. has been the leading provider of venture capital to the independent sector of the U.S. energy industry. The firm has raised 21 institutional investment funds totaling approximately $37 billion and currently manages capital on behalf of more than 350 U.S. and international investors.

Kayne Anderson Capital Advisors, L.P., founded in 1984, is a leading alternative investment management firm focused on energy, infrastructure, real estate, credit, and growth equity. Kayne’s investment philosophy is to pursue niches, with an emphasis on cash flow, where our knowledge and sourcing advantages enable us to deliver above average, risk-adjusted investment returns. As responsible stewards of capital, Kayne’s philosophy extends to promoting responsible investment practices and sustainable business practices to create long-term value for our investors. Through Kayne Anderson Energy Funds (“KAEF”), the firm has raised over $7.3 billion of committed capital dedicated to private equity investments in primarily upstream and midstream oil and gas companies.

1 Management estimates based on currently available information. Projections are inherently uncertain and subject to change. See “Forward-Looking Statements.”

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