Riverstone, ex-energy CEO raise $1 billion in largest such stock sale in a decade

By Ryan Dezember and Maureen Farrell 

Investors handed a blank check for $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 72% 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 get a theology degree at Harvard Divinity School.

The stock sale, which launched Thursday and raised a little over $1 billion, including shares that the banks managing the deal bought, tied the record for the largest blank-check offering set a decade ago, according to Dealogic. The stock gained 3.6% Friday in its stock market debut.

The Silver Run shares gained 3.6% in their stock- market debut Friday, an unusual move in the early days of such a company.

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 traditionally have attracted hedge funds willing to make speculative bets on specific deal makers, but these days bankers say they are 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. Chief Executive 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 investors' 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 is 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, Mr. Hackett 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.

In recent years, though, SPACs have come back. Since 2015, investors have given nine-figure blank checks to well-known deal makers to pursue acquisitions in consumer products, technology 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 would 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 initial public offerings of stock.

Banks that worked on the deal included Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, and Goldman Sachs Group Inc.

Write to Ryan Dezember at ryan.dezember@wsj.com and Maureen Farrell at maureen.farrell@wsj.com

(END) Dow Jones Newswires

March 25, 2017 02:47 ET (06:47 GMT)