Privately-owned independent oil and gas exploration and production company Chaparral Energy, Inc. and special purpose acquisition company United Refining Energy Corp. (URX) on Monday agreed to merge in a deal valued at about $1.8 billion. The combined company would be named Chaparral Energy, Inc. and will be listed on the NYSE under the symbol "CPR". Chaparral Energy has applied for approval to transfer its NYSE Amex listing to the NYSE. The proposed deal is expected to close no later than December 11, 2009.
Billionaire John Catsimatidis' New York-based United Refining was formed in December 2007 as a special purpose acquisition company or SPAC that does not have significant operations. Its focus is to acquire an operating business in the energy industry through a merger, capital stock exchange, asset acquisition, or other similar business combination. As of September 30, 2009, United Refining has about $452 million in trust.
In a statement, co-founder, chairman and chief executive officer, Mark Fischer said, "This merger with URX will allow us to achieve our strategic goal of becoming a publicly traded company on one of the major stock exchanges. This merger will give Chaparral access to capital we need to exploit our large inventory of drilling and development opportunities and to significantly step up our EOR program."
United Refining noted that the proposed merger with Chaparral is a great deal for its shareholders, who have spent almost two years looking for the right target for the SPAC, and believe this as the best opportunity that has come along. Chaparral's management team has demonstrated the ability to find lucrative oil and gas properties at prices that have resulted in superior returns on investment.
The blank-check vehicle United Refining was taken public in late 2007 to raise money for an acquisition, and was coming up on a deadline of December 11 to use the money or return it to shareholders. Assuming a combined company stock price of about $10 per share, total enterprise value of the deal would be $1.8 billion, implying a multiple of 2010 estimated EBITDA of 5.3x.
Chaparral's assets are focused in the Permian basin of West Texas, along the Gulf Coast and in the Rocky Mountains. The company employs so-called enhanced oil recovery methods in many of its fields, which involves injecting mature wells with a high-pressure mix of carbon dioxide, increasing oil flow. The company owns interests in nearly 400 miles of carbon dioxide pipelines.
As of June 30, 2009, Chaparral's proved reserves were 146 million barrels of oil equivalent or boe, 62% of which is oil, and its average daily production for the first half of 2009 was 21,000 boe per day. Chaparral expects 2009 production to be about 7.6 million boe, and 2010 production to be about 9.9 million boe, a 30% increase over 2009.
Pursuant to the merger, Fischer would continue as chairman and chief executive of the combined entity, while Catsimatidis, chairman and chief executive officer of United Refining, will become executive chairman of the board of directors of the new company. Chaparral's Chief Financial Officer Joseph Evans and Senior Vice President and General Counsel Robert Kelly II, will continue in their current positions in the combined entity.
Under the terms of the deal, Chaparral shareholders will exchange their entire equity stake in Chaparral for 58 million shares in the combined company, and will also be entitled to 20 million additional contingent shares, 5 million of which will be issued but subject to forfeiture. Meanwhile, shares held by Catsimatidis will be restructured into 5.6 million shares in the combined company and 5.6 million contingent shares, also subject to forfeiture.
Chaparral will also receive about $300 million in cash upon closing of the proposed deal, assuming 24% of the United Refining public shareholders elect to redeem their shares for cash, and 50% of the United Refining warrants are redeemed for cash at $0.50 per warrant.
Upon closure of the deal, the combined company will have a total of about 98 million shares outstanding, excluding all contingent shares and warrants, with Chaparral shareholders owning 59% of the combined company, United Refining shareholders 35%, and Catsimatidis 6%.
The proposed merger deal is contingent United Refining shareholder and warrantholder approval, refinancing of Chaparral's existing revolving senior secured credit facility, receipt of a minimum of $250 million of cash from United Refining upon closing, and other customary closing conditions.
For the deal, Deutsche Bank Securities Inc. and Maxim Group LLC are acting as financial advisers to United Refining, while New Century Capital Partners, Inc. provided a fairness opinion. URX's legal counsel is Ellenoff Grossman & Schole LLP. Morgan Stanley & Co. Inc. is acting as financial adviser to Chaparral in connection with the proposed transaction. Chaparral's legal counsel is McAfee & Taft.
In its search to find a suitable acquisition target, United Refining last year agreed to merge with Houston-based Edge Petroleum, but the companies called off the deal after being unable to obtain financing. Edge Petroleum filed for Chapter 11 bankruptcy protection on October 2.
URX closed Monday's regular trading session at $9.94, down $0.02 or 0.20% on a volume of 14,500 shares, lower than the three-month average volume of 0.14 million shares.
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