Ex-Occidental Chief in $2.66 Billion Deal for EnerVest Shale

(Bloomberg) -- Steve Chazen, who transformed Occidental Petroleum Corp. into a heavyweight of the U.S. shale boom, is looking to replicate that success in south Texas with a $2.66 billion deal.

TPG Pace Energy Holdings Corp., a blank-check company formed by Chazen and private equity firm TPG, agreed to acquire rights to about 360,000 net acres in the Eagle Ford and Austin Chalk drilling plays from oil and gas investment firm EnerVest Ltd., according to a statement Tuesday.

Ex-Occidental Chief in $2.66 Billion Deal for EnerVest Shale

TPG Pace, which raised $650 million in a public offering in May, plans to change its name to Magnolia Oil & Gas Corp. upon closing the deal by the end of June. Chazen will be chief executive officer of Magnolia while EnerVest will operate the assets and own about 51 percent of the company. TPG Pace investors will own 43 percent and TPG will own the rest, according to the statement.

Chazen, who left Occidental in 2016 after more than 20 years at the company, is the latest high-profile oilman to stage a comeback at the helm of a so-called special purpose acquisition vehicle. SPACs raise money from investors with a mandate to spend most of it buying a company.

The 71-year-old said he isn’t ready to retire.

“What I enjoy doing is I enjoy capital allocation, or investing money,” Chazen said in an interview. “I plan to do it for a long time.”

Private Placement

TPG Pace is paying EnerVest a combination of stock and cash. It plans to raise about $330 million of that cash through a private placement of shares to investors including Fidelity Management & Research Co., Capital Research and Management Co. and Davis Selected Advisers LP, according to the statement. Chazen, along with certain TPG executives, will invest an additional $25 million on the same terms.

Chazen’s former chief financial officer at Occidental, Christopher Stavros, will take the same position at Magnolia, the companies said.

TPG Pace shares rose as much as 5.9 percent in New York trading, their biggest intraday advance since the stock debuted in June. The shares closed up 4.4 percent at $10.16.

Ex-Occidental Chief in $2.66 Billion Deal for EnerVest Shale

EnerVest CEO John Walker said the deal will enable the Houston-based private equity firm to go into business with a well-respected operator with a proven track record.

“We have a lot of confidence in Steve,” he said. “I have admired him for a long time. I think he does things the right way.”

Other oil industry veterans now leading companies that began as SPACs include James Hackett, the former head of Anadarko Petroleum Corp. Hackett helps run Alta Mesa Resources Inc., which last month closed the purchase of an explorer in the Stack region of Oklahoma. Mark Papa, the former head of EOG Resources Inc., runs Centennial Resource Development Inc., a SPAC that bought a company in a portion of the Permian Basin known as the Delaware two years ago.

“Steve has a longstanding reputation for driving strong financial results and accountability, traits that are becoming more important to investors,” said Michael MacDougall, senior partner of TPG and managing partner for TPG Pace.

Come Out A Winner

Where Papa and Hackett have entered into two of the hottest new shale plays in the country, Magnolia will focus on South Texas acreage known to the industry for decades. Chazen said his goal is to create a low-risk, steadily-performing company that doesn’t have a lot of debt and is easy for investors to understand.

“When there is a downturn, you have to come out a winner,” he said in an interview. “You need a conservative model in a volatile business.”

To that end, the deal with EnerVest is fairly low priced, Chazen said. The assets are valued at about five times earnings before interest, taxes, depreciation and amortization, or Ebitda, a key measure of cash flow, according to an investor presentation prepared by TPG Pace. The median U.S. crude oil explorer trades at about 6.8 times Ebitda, according to data compiled by Bloomberg.

EnerVest’s land produced the equivalent of about 40,000 barrels of oil per day, according to the presentation. Its cash flow is forecast to exceed capital expenses by about $200 million over the next two years.

“I want to have earnings and free cash flow so it appeals to the investor that might want to buy Johnson & Johnson stock,” Chazen said.

Credit Suisse Group AG, Deutsche Bank AG and Goldman Sachs Group Inc. were advisers to TPG Pace, while Vinson & Elkins acted as legal counsel. Citigroup Inc. acted as financial adviser to EnerVest with Gibson Dunn & Crutcher LLP as legal counsel.

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