Business Context and Reporting Period
Company: TPG Pace Energy Holdings Corp. (Note: The filing metadata references Magnolia Oil & Gas Corp, but the document text identifies the registrant as TPG Pace Energy Holdings Corp.)
Date: March 20, 2018
Event: Entry into Material Definitive Agreements for a business combination involving the acquisition of oil and natural gas assets and a midstream interest.
Key Financial Metrics and Transaction Structure
- Total Consideration: Approximately $2.42 billion to be paid to sellers.
- Cash Component: Not less than approximately $950 million.
- Equity Component: Remainder paid in Class A and/or Class B Common Stock (based on a $10.00 per share price).
- Private Placement: Issuance of 35,500,000 shares of Class A Common Stock for approximately $355 million to fund the cash portion of the deal.
- Debt Financing:
- Senior Secured Reserve-Based Revolving Credit Facility (RBL): $1,000 million aggregate principal (expected $385 million availability at closing; $550 million initial borrowing base).
- Senior Unsecured Increasing Rate Bridge Loan: Up to $500 million (less proceeds from senior notes).
- Liquidity Condition: Closing requires the Company to have at least $610 million of Available Cash.
- Operating Costs: Annual net general and administrative fee of approximately $31 million ($24 million fixed + $7 million inflation-adjusted) payable to EnerVest Operating L.L.C.
Material Changes and Transaction Details
The Company entered into three primary agreements to acquire assets from EnerVest funds:
- Eagle Ford Contribution Agreement: Acquisition of oil and natural gas assets in the Karnes County portion of the Eagle Ford Shale.
- Austin Chalk Purchase Agreement: Acquisition of assets in the Giddings Field of the Austin Chalk.
- Ironwood MIPA: Acquisition of approximately 35% membership interest in Ironwood Eagle Ford Midstream, LLC (a gathering system).
Earn-Out Provisions:
- Eagle Ford Contributors: Eligible for up to 13,000,000 additional shares of Stock through December 31, 2021, based on EBITDA, free cash flow, or stock price thresholds.
- Austin Chalk Sellers: Eligible for up to $47 million in cash payments over five years based on net revenue thresholds.
Guidance, Risks, and Contingencies
Conditions to Closing: The transaction is subject to customary conditions, including stockholder approval, NYSE listing approval, absence of adverse laws, and satisfaction of the $610 million Available Cash requirement. The agreements are interdependent; the Eagle Ford and Austin Chalk transactions are conditioned on each other closing.
Termination Rights: Agreements may be terminated if not consummated by October 31, 2018 (subject to extensions), or upon breach of representations/warranties. No termination fees are required.
Indemnification Caps:
- Eagle Ford Contributors: Cap of 15% of consideration; 1.5% aggregate deductible.
- Austin Chalk Sellers: Cap of 15% of consideration; 2% aggregate deductible.
- Ironwood Sellers: Cap of 15% of consideration; 2% aggregate deductible.
Risks: Forward-looking statements are subject to risks including failure to obtain stockholder approval, disruption of operations, inability to realize anticipated benefits, and changes in oil and gas prices or regulations.
Investor Verification Checklist
- Verify the final mix of cash versus equity consideration, as the Company retains discretion to increase cash payments.
- Confirm the outcome of the stockholder vote required to approve the business combination and certificate of incorporation changes.
- Monitor the effectiveness of the registration statement for the Private Placement shares (liquidated damages of 0.5% monthly apply if not effective within 90 days).
- Review the definitive proxy statement for details on the Board composition changes and the Stockholder Agreement.
- Assess the impact of the $31 million annual operating fee on future free cash flow.
- Track the status of the $1.5 billion debt commitment and the final borrowing base determination.