They say that success is easy: All one needs to do is find something that works, and then do it – over and over again.
Early last year, I recommended Silver Run Acquisitions, a special purpose acquisition company (SPAC) put together by EOG Resources ex-CEO Mark Papa, one of the ‘movie stars’ of shale oil production here in the United States. I liked Mark Papa’s approach to building EOG, and the unbelievable success that his company has had in finding, accessing and managing some of the best acreage in the Eagle Ford and Permian basins. He was on the top of everyone’s list for smart and successful shale CEO’s. More than that, since leaving EOG, Papa had had several interviews that proved to me he was not just a mindless cheerleader for shale like some other ‘star’ CEO’s. He spoke about many of the difficulties in shale development going forward and foresaw the glut and oil’s price decline.
There were further incentives to latching on to Silver Run early in its life: The structure of the SPAC vehicle, with its ‘blank check’ flexibility and zero debt, positioned them perfectly to take advantage of the coming bust and deleveraging of assets that was part of shale reorganization in 2016. Papa used these advantages, ultimately throwing his entire bankroll at Centennial Resources (CDEV), a leveraged player in the hot Permian, becoming the CEO of that company in the process. For both entities, it was a great match: Centennial got cash to help deleverage and a premier CEO while Silver Run got great assets at a discounted price. The investment so far has delivered nearly a 90 percent return.
Now, along comes the second act: Silver Run Acquisitions II (SRUNU) – a second $1.035 billion SPAC pushed forward by Riverstone Holdings, using the same exact model as Silver Run I.
This time, a different but nearly equivalent ‘star’ to Papa has emerged to run this new SPAC – Jim Hackett, the ex-CEO of Anadarko and COO of Devon Energy. Of course, the question is: Can the second act of this show be anywhere as good as the first?
My answer is that it could. But there are differences to note.
On the negative side, the environment for acquiring shale assets is not quite as desperate as when Papa was shopping around in 2016 – although there are still massive consolidations occurring with shale players, the comps for acreage now, as oil is hovering near to $50, are much pricier. Secondly, the reorganization that many large caps have been engaged in is in its third year – many of the bargains may already have been bought.
But there are positives for Hackett, as well. Most importantly, he has strong connections to two of the biggest U.S. independents – Anadarko and Devon – and BOTH of these big companies have been in a very strong, and as yet incomplete, push to shed assets and debt. As these consolidations proceed, is there a solid chance that the ex-CEO and COO of both companies might get a first look at some of these sale acreage prices before they go to the general market? I’d say there is. Even if his acquisitions don’t come from these two, Hackett knows virtually everyone in the shale space.
Shares for Silver Run II IPO’ed at $10 per unit, exactly as Silver Run I did more than a year ago. Today, they are trading above $10.45 and will cost a very reasonable 5 percent premium to get in.
I think that’s a worthy punt on a blank check SPAC that’s not reinventing the wheel, but merely trying to repeat the success of their sister offering.