TPGE to buy EnerVest’s South Texas unit’s oil and gas assets, will partner with EnerVest to form Magnolia

TPG Pace Energy Holdings Corp, an energy-focused blank check company formed by TPG Pace Group and former Occidental Petroleum Corp CEO Steve Chazen, has agreed to acquire the oil and gas assets within EnerVest’s South Texas division for about $2.66 billion in cash and stock. As part of the deal, TPGE and EnerVest will team up to form Magnolia Oil & Gas Corp. Magnolia will be led by Chazen, who will serve as the company’s chairman, president and CEO. Also, EnerVest will retain a “significant” ownership stake in Magnolia. Upon the closing of the transaction, which is expected to happen late in second quarter of 2018, Magnolia will trade on the New York Stock Exchange.

PRESS RELEASE

HOUSTON–(BUSINESS WIRE)–TPG Pace Energy Holdings Corp. (“TPGE”) (NYSE: TPGE, TPGE.U, TPGE.WS), an energy-focused special purpose acquisition entity led by former Occidental Petroleum Corporation CEO Steve Chazen, today announced it has entered into definitive agreements with certain funds managed by EnerVest, Ltd (“EnerVest”) to acquire the oil and gas assets within EnerVest’s South Texas Division for approximately $2.66 billion in cash and stock. As part of the transaction, TPGE and EnerVest are partnering to create Magnolia Oil & Gas Corporation (“Magnolia”), a new company led by Chazen who will serve as Magnolia’s full-time Chairman, President and CEO. EnerVest will retain a significant ownership stake in Magnolia. The transaction is subject to approval by the TPGE shareholders and other customary closing conditions, and the new company will trade on the NYSE under a new ticker upon closing, which is expected to occur late in the second quarter of 2018.

The formation of Magnolia creates a large-scale, pure-play South Texas operator with top-tier Eagle Ford and Austin Chalk asset positions with more than 40,000 boe per day of production. Magnolia will acquire EnerVest’s approximately 360,000 total net acres in South Texas, which consists of approximately 14,000 net acres in one of the most prolific sections of Karnes County and 345,000 net acres in the emerging, high-growth potential Giddings Field. The acreage position is almost entirely held by production, and the production from the combined asset base is heavily weighted toward oil. We believe the combination of superior operating margins and attractive new well economics will allow Magnolia to deliver high-return, self-funded production growth and generate substantial free cash flow after drilling capital. In addition to Chazen’s leadership, Magnolia will benefit from the corporate support, experience and local knowledge of EnerVest’s South Texas team, which will continue to operate the assets following the closing of the transaction under a long-term services agreement with EnerVest.

TPG Pace Group and Chazen formed TPGE in early 2017 with the intent to build a large scale, focused oil and gas business with a meaningful production base, strong free cash flow and a disciplined financial return philosophy. Following its IPO in May 2017, TPGE began its search for attractive assets that would benefit from Chazen’s operating approach and succeed as a public company with low leverage. A veteran of the oil and gas sector, Chazen has an established track record with more than 25 years of experience implementing disciplined growth strategies and generating shareholder value in the public markets. Upon closing, Chazen will be joined by his long-time colleague and business partner, Christopher Stavros, who will serve as the company’s Chief Financial Officer. Most recently, Stavros served as CFO of Occidental Petroleum Corporation. Chazen and Stavros share the philosophy of generating attractive full-cycle returns while maintaining a strong balance sheet with low leverage.
“In creating Magnolia, we have a unique opportunity to build a new company anchored by what we consider to be some of the highest quality oil producing acreage in the country,” said Chazen. “We believe Magnolia’s acreage in Karnes County has some of the best economics in the United States and, when coupled with the upside in the Giddings Field, is a great fit with our criteria. Our objective is to maximize shareholder returns by generating steady production growth, strong pre-tax margins in excess of industry norms and significant free cash flow. Assuming moderate commodity prices, we plan to invest less than 60% of cash flow to fund a drilling program that consistently delivers more than 10% annual production growth. I look forward to leading this rigorous capital allocation process at Magnolia for the benefit of our shareholders and employees.”

“I have known Steve for more than 20 years and I cannot think of a better executive to lead Magnolia,” said EnerVest CEO and founder John B. Walker. “The playbook he perfected at OXY is a great match for the outstanding acreage we have assembled in South Texas over the last 10 years. All of us at EnerVest look forward to partnering with Steve as he builds Magnolia going forward.”

“We formed TPGE with Steve to build a differentiated oil and gas asset that was positioned for success in the public markets,” said Michael MacDougall, Senior Partner of TPG and Managing Partner for TPG Pace Energy. “Steve has a longstanding reputation for driving strong financial results and accountability, traits that are becoming more important to investors. This transaction reflects our philosophy of matching accomplished executives with great assets and the proper capital structure to maximize our value creation plan. Magnolia brings world-class executives, outstanding assets and now a blue-chip investor base together in a compelling manner, and we are proud to partner with Steve and the larger team at the start of this exciting journey.”

Magnolia Company Highlights1
High-quality, oil-weighted pure-play South Texas operator
Approximately 40,000 boe per day of current net production with 31,000 boe per day in Karnes County and 9,000 boe per day in Giddings Field
Total production base is 62% oil and 78% liquids
Roughly 360,000 net acres, including 14,000 net acres in the core of Karnes County
Industry leading all-in-cost and full cycle economics in Karnes County with break-evens in the low $30’s per barrel
Estimated new well paybacks of less than one year in both Karnes County and Giddings Field
Strong financial profile with low leverage, strong liquidity and substantial cash flow generation after capital requirements of the planned rig program
Estimated 2018 EBITDA of $513 million and approximately $240 million of estimated 2018 free cash flow after capital investment2
Industry leading 10% free cash flow yield3. Very low leverage (0.6x 2018 estimated EBITDA) and more than $500 million of initial liquidity

Transaction Details
On March 20, 2018, TPGE entered into definitive agreements to acquire EnerVest’s South Texas Division for approximately $2.66 billion in cash and stock.4 Upon the closing of the business combination, the company will be renamed Magnolia Oil & Gas Corporation. With an anticipated initial enterprise value of $2.66 billion and an estimated $513 million of EBITDA for 2018, the transaction is valued at approximately 5.0x 2018 estimated EBITDA. The company will largely be equity financed as TPGE anticipates $300 million of funded debt (0.6x 2018 estimated EBITDA) at closing alongside a $550 million undrawn credit facility. EnerVest will receive approximately $1.2 billion in cash at closing and will retain roughly 120 million shares of common stock.

In connection with the transaction, TPGE has entered into agreements to raise approximately $330 million through a private placement of roughly 33.0 million shares ($10.00/share) of Class A common stock. This placement was anchored by certain funds and accounts managed by Fidelity Management & Research Company, Davis Selected Advisers, L.P. and certain funds managed by Capital Research and Management Company and included several other leading institutional investors. In addition, Chazen and certain TPG executives will personally subscribe for an additional $25 million investment on the same terms. The private placement is expected to close concurrently with the transaction. The public float after giving effect to this private placement is expected to be approximately $1 billion. Assuming no redemptions of TPGE public shares, the EnerVest funds will own 51% of the issued and outstanding shares of common stock of Magnolia immediately following the closing, the TPGE public investors including the PIPE will own 43% and the remainder will be owned by TPG.

The transaction was unanimously approved by the board of TPGE and remains subject to the approval of TPGE shareholders and the satisfaction or waiver of other customary conditions. TPGE has secured financing commitments for the anticipated funded debt and RBL. After giving effect to any redemptions by the public shareholders of TPGE, the balance of the approximately $650 million in cash held in the TPGE trust account, together with approximately $350 million of private placement proceeds and the debt financing will be used to pay the seller’s cash consideration and closing costs. Following the consummation of the transaction, Magnolia’s ordinary shares will be listed on the NYSE.

Upon closing, Magnolia will maintain a seven person board, which will include Steve Chazen as Chairman, two appointees named by each of TPGE and EnerVest and two additional independent directors.

In connection with the transaction, EnerVest’s South Texas operating team will continue to operate the assets post-transaction under a long-term services agreement. Under the terms of this services agreement, EnerVest will provide more than 90 dedicated operating, technical and field level employees. Additionally, EnerVest will provide shared services for certain corporate functions under this agreement. Following the closing, EnerVest may earn up to an additional 17 million shares if certain operating and/or stock price targets are achieved. Please see the investor presentation for more detail.

Advisors
Credit Suisse Securities (USA) LLC acted as financial advisor to TPGE, Deutsche Bank Securities Inc. and Goldman, Sachs & Co. acted as capital markets advisors to TPGE; Vinson & Elkins L.L.P. acted as legal counsel to TPGE. Citigroup acted as financial advisor and capital markets advisor to EnerVest; Gibson, Dunn & Crutcher LLP acted as legal counsel to EnerVest.

Investor Webcast and Presentation Information
At 10:00 am EST on March 20, 2018, TPGE will be holding an investor conference call to discuss the transaction. For those who wish to participate, the domestic toll-free access number is (877) 389-1525 and the international toll-free access number is (614) 610-4601. Once connected with the operator, please provide the Conference ID number of 8783808 and request access to the Magnolia

Transaction Announcement Investor Call.
A replay of the call will also be available from 1:00 pm EST on March 20, 2018 to 11:59 pm EST on March 27, 2018. To access the replay, the domestic toll-free access number is (866) 247-4222 and participants should provide the Conference ID number of 8783808 and request access to the Magnolia Transaction Announcement Investor Call.

About Magnolia Oil & Gas Corporation
Following completion of the transaction, Magnolia Oil & Gas Corporation will be a publicly traded oil and gas exploration and production company with South Texas operations in the core of the Eagle Ford. Magnolia will focus on generating value for shareholders through steady production growth and free cash flow. For more information, visit www.magnoliaoilgas.com.

About TPG Pace Group and TPG Pace Energy Holdings
TPG Pace Group is TPG’s dedicated permanent capital platform. Led by TPG partner Karl Peterson, the platform was created in 2015 with the objective of sponsoring special purpose acquisition companies and other permanent capital solutions for companies. TPG Pace Group has a long-term, patient, and highly flexible investor base, allowing it to seek compelling opportunities that will thrive in the public markets with its sponsorship. TPG Pace Group has sponsored three SPACs and has raised roughly $2 billion since 2015. The first of these vehicles was used to sponsor the public listing of Playa Hotels and Resorts in March of 2017 (NASDAQ: PLYA).

TPG Pace Holdings (NYSE: TPGH, TPGH.U, TPGH.WS) raised $450 million in its June 2017 IPO and is currently seeking targets for a business combination that are suited to generate strong returns in a public market environment while benefitting from the broader operational knowledge, resources and private equity heritage of its team and TPG. For more information, visit www.tpg.com/tpg-pace-holdings.

TPG Pace Energy Holdings Corp. is a $650 million special purpose acquisition company formed by TPG Pace Group and Occidental Petroleum Veteran Steve Chazen that went public on the NYSE in May of 2017. TPGE was formed with the intent to build a large scale, focused oil and gas business with a meaningful production base, strong free cash flow and a disciplined financial return philosophy.

Following its IPO, TPGE began its search for attractive assets that would fit with Chazen’s operating approach and succeed as a public company with low leverage. For more information, visit www.tpg.com/pace-energy.

About EnerVest
Houston-based EnerVest, founded in 1992, acquires, develops and operates oil and gas fields in 14 states on behalf of its investors.