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HighPeak Energy and blank-check company Pure Acquisition Corp. agreed to a new business combination on May 4 following a scuttled three-way merger agreement with private-equity-backed Grenadier Energy Partners II.
Previously, the duo, which share board members and are both led by industry veteran Jack D. Hightower, had agreed to acquire Grenadier, backed by EnCap Investments LP and Kayne Anderson Capital Advisors. The combination was expected to form the largest pure-play northern Midland Basin E&P with a 73,000-net-acre position.
The crash in oil prices, however, forced a renegotiation of terms and, citing “current market uncertainty,” the companies agreed on April 24 to terminate the combination, according to a filing with the U.S. Securities and Exchange Commission.
The new business combination agreement between only HighPeak and Pure is expected to close third-quarter 2020.
The combined company, set to trade as HighPeak Energy Inc., will hold a 51,000-net-acre position in the northern Midland Basin, which HighPeak Chairman and CEO Hightower described in a statement as “providing the best onshore domestic U.S. opportunities.”
Located primarily in Howard County, the contiguous position will be greater than 90% operated and is expected to provide scale and a depth of inventory to maximize capital and operating efficiencies. Anticipated net production is about 12,000 boe/d—comprising more than 80% oil—upon completion of HighPeak Energy’s inventory of drilled but uncompleted wells.
Additionally, about 495 gross (400 net) drilling locations have been identified in either the Wolfcamp A and/or Lower Spraberry formations that are planned to be developed with mostly two-mile laterals. Planned pad development assuming three operated rigs is set to begin after close of the business combination, the company release said.
Hightower, a veteran energy leader who previously led Titan Exploration and Bluestem Energy Partners, said the HighPeak management team is confident in achieving its development program after reviewing its “drilling success” over the last six months.
“With the decline of energy prices over the last few months, several energy companies are struggling,” Hightower said. “However, due to our low drilling and completion costs and our low operating costs, our breakeven prices are much lower than our competitors which enables us to operate profitably at lower price levels.”
|Gross / Net Operated Locations
|~495 / ~400
|Net Production (90% Oil)
|EBITDA (NTM at Closing)
HighPeak Energy’s development costs prior to the pandemic including drilling, completion, equipping and facilities averaged less than $525 per foot for 10,000 foot or longer laterals, according to President Michael L. Hollis, who added the company has worked to lower costs further over the last several months.
“The combination of our high oil cut and low operating costs enable us to earn among the highest margins in the Permian Basin,” Hollis said in a statement.
Jefferies LLC acted as financial adviser with respect to the business combination agreement. Hunton Andrews Kurth LLP provided legal counsel to the special committee of the board of directors of Pure. Latham & Watkins acted as legal counsel to Jefferies. Vinson & Elkins LLLP was legal counsel to the HighPeak Funds. EarlyBirdCapital Inc. acted as adviser for Pure.
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