[Context: On June 4, 2018, Blackstone’s Royal Resources announces $894m deal to be acquired by SPAC Osprey Energy Acquisition Corp. to form Falcon Minerals Corporation. Further details and related links are below.]


 Osprey Energy Acquisition Corp.Falcon Minerals Corporation

Osprey Energy Acquisition Corp. and Blackstone’s Royal Resources Announce Combination to Form Falcon Minerals Corporation, a Publicly Traded Oil-Weighted Minerals Company

Combination to create the first public minerals company with oil-weighted assets concentrated in the core-of-the-core Eagle Ford Shale; Falcon Minerals will be led by the experienced Osprey Energy management team in partnership with Blackstone and structured as a C-corporation; Transaction includes a $115 million PIPE investment commitment completed pre-signing for new common stock ($10.00 per share) and from leading investment firms; Existing Osprey investors representing approximately $75 million of additional common stock are committed to retaining shares through closing and not redeeming their shares

New York–June 4, 2018–Osprey Energy Acquisition Corp. (“Osprey”) (NASDAQ: OSPR, OSPRU, OSPRW), an energy-focused special purpose acquisition entity, today announced it has entered into a definitive agreement to acquire the assets of Royal Resources (“Royal”), an entity owned by funds managed by Blackstone Energy Partners and Blackstone Capital Partners (“Blackstone”). The acquired Royal assets represent the entirety of Blackstone’s mineral interests in the Eagle Ford Shale, and the transaction will create a company with a total enterprise value of approximately $894 million.

The combined company, which will be named Falcon Minerals Corporation (“Falcon Minerals”), will be led by Osprey’s management team: Jonathan Cohen, Edward Cohen and Daniel Herz. Blackstone will retain a significant ownership stake in Falcon Minerals at closing representing approximately 47% of outstanding common stock.

The formation of Falcon Minerals creates a unique, high growth, core-of-the-core oil and gas minerals company with top-tier Eagle Ford and Austin Chalk asset positions covering 251,000 gross unit mineral acres. Net production over the first quarter was 4,764 boe per day increasing recently to a rate approaching 7,000 boe per day from new wells coming on line. Net production for 2018 is expected to be approximately 6,352 boe per day. Falcon Minerals is expected to have over 85% of its reserve value in long-lived, undeveloped acreage with over 3,000 locations which generate IRRs to operators in excess of 100%. The three largest operators on Falcon Minerals’ lands, which contribute over 90% of reserve value, are ConocoPhillips, EOG and BHP/Devon.

Falcon Minerals expects to generate cash margins above 90%, and to distribute nearly all of its free cash flow, and currently expects to pay an initial cash dividend after closing of the transactions of $0.90 per share per year. Currently, there are over 1,789 producing wells on the properties with expected 2018 liquids production of greater than 73%, and over 80% of revenue derived from oil.

The Eagle Ford and Austin Chalk benefit from proximity to the US Gulf Coast market and significant in-place infrastructure, supporting a premium price for crude oil sales relative to WTI, further advantaging the economics of both plays. Falcon Minerals is further exposed to potential value in the Marcellus Shale with over 58,000 gross unit mineral acres.

“Osprey went public in July 2017 with the intent to find a world class and unique energy business that was poised to benefit from a new phase as a public company, and we believe that is exactly what we are creating with Falcon Minerals,” said Jonathan Z. Cohen, CEO of Osprey Energy Acquisition Corp. “We will have a unique opportunity to benefit from some of the highest quality acreage in the United States, driven by the best operators in the play dedicated to significantly growing their production across our position. There is a tremendous opportunity to build on this excellent business by utilizing our organic growth and acquisition skills in a highly fragmented oil and gas minerals industry, and we are thrilled to partner with Blackstone and benefit from their vast experience in the sector.”

Falcon Minerals Highlights

251,000 gross acres to which royalty applies

Over 3,000 locations each with an IRR of greater than 100% to the operator across Karnes, DeWitt and Gonzales counties

Net production in the first quarter of 4,764 boe per day, recently approaching 7,000 boe per day from new wells coming on line

Consistent cash margins in excess of ~90%, high free cash flow conversion, and a cost structure with no capital expenditures or direct operating expenses

Strong basis differentials due to well established infrastructure in the Eagle Ford and proximity to the US Gulf Coast

Strong financial profile with low leverage

2019 free cash flow1 of approximately $100 million based on a $60/bbl oil price, implying a ~28% discount to the 2019 peer group average, and representing an 8.3x enterprise value to 2019 EBITDA

2019 free cash flow yield2 expected of approximately 11.6% at $10.00 per share

2018 free cash flow of approximately $80 million based on a $60/bbl oil price, implying a ~17% discount to the peer group average

“We have known Jonathan, Ed and Daniel for many years and are excited to partner with them to lead Falcon Minerals,” said Angelo Acconcia, a Senior Managing Director with Blackstone who oversees their private equity investments in the oil and gas sector. “Their prior experience in thoughtfully and accretively building and realizing significant value at both Atlas Pipeline and Atlas Energy demonstrate their capability, and the like mindedness we share in the opportunity, to generate significant long-term value at Falcon Minerals.”

Transaction Details

On June 3, 2018, Osprey entered into a definitive agreement to acquire the assets of Royal Resources from Blackstone. Upon the closing of the business combination, Osprey will be renamed Falcon Minerals Corporation and will be reorganized to operate as an “Up-C”, where its operating assets are held in a separate limited partnership to be named Falcon Minerals Operating Partnership. Blackstone will contribute the Royal Resources assets to Falcon Minerals Operating Partnership in exchange for $400 million of cash and 40 million of common units of Falcon Minerals Operating Partnership (and an equal number of non-economic shares of Class C common stock of Falcon Minerals Corporation), subject to certain adjustments as set forth in the definitive agreement. Each common unit of Falcon Minerals Operating Partnership (together with one share of Class C common stock of Falcon Minerals Corporation) will be exchangeable into one share of Class A common stock of Falcon Minerals Corporation.

In addition to the consideration received at closing, Blackstone may earn an additional 10 million common units of Falcon Minerals Operating Partnership (together with an equivalent number of Class C common stock of Falcon Minerals Corporation) if the Falcon Minerals Class A common stock trades above $12.50 per share for 30 days on a volume-weighted average basis, as well as an additional 10 million common units of Falcon Minerals Operating Partnership (together with an equivalent number of Class C common stock of Falcon Minerals Corporation) if the Falcon Minerals Class A common stock trades above $15.00 per share for 30 days on a volume-weighted average basis, subject to certain conditions and adjustments as set forth in the definitive agreement.

To finance the transaction, Osprey has entered into agreements to sell in a private placement approximately 11.5 million shares of its Class A common stock at a price of $10.00 per share, for a total of approximately $115 million. The investors in the private placement include leading financial institutions, as well as members of Osprey management. The private placement is expected to close concurrently with the Royal transaction. In addition, Osprey has received a contractual commitment from all of the investors in the private placement who currently hold Osprey common stock (which constitutes approximately $75 million of Osprey common stock in the aggregate) that they will retain their shares at least through closing and not redeem their shares for cash. Assuming no redemptions of Osprey common stock, immediately following the closing, Blackstone will own approximately 47% of the outstanding shares of common stock of Falcon Minerals Corporation (assuming each of its Common Units of Falcon Minerals Corporation are converted into shares of Class A common stock of Falcon Minerals Corporation), and the Osprey stockholders (including the PIPE investors) will own the remaining 53%.

Osprey has also entered into a debt commitment agreement with certain lenders, pursuant to which the lenders have committed to make available to Osprey at closing a $500 million revolving credit facility with an initial borrowing base of $115 million.

The transaction was unanimously approved by the Osprey board of directors and remains subject to the approval of Osprey shareholders and the satisfaction or waiver of other customary conditions. Osprey has secured financing commitments for the anticipated RBL. After giving effect to any redemptions by the public shareholders of Osprey, the balance of the approximately $275 million in cash held in the Osprey trust account, together with approximately $115 million of private placement proceeds and the debt financing will be used to pay the cash consideration to Blackstone and closing costs. Following the consummation of the transaction, the Falcon Minerals Class A common stock will be listed on the New York Stock Exchange.

Upon closing, Falcon Minerals Corporation will have 11 persons on its board of directors, including six directors appointed by Blackstone, two directors appointed by the holder of Osprey’s founder shares and three additional independent directors.

Advisors

Credit Suisse Securities (USA) LLC acted as capital markets advisors to Osprey and sole placement agent on the PIPE; Wachtell, Lipton, Rosen & Katz acted as legal counsel to Osprey; Paul Hastings LLP and Ledgewood PC acted as Oil and Gas counsel to Osprey. Citi acted as financial advisor and capital markets advisor to Blackstone and is acting as Lead Arranger and Administrative Agent on the fully underwritten RBL Facility; Kirkland & Ellis LLP acted as legal counsel to Blackstone.

 

About Falcon Minerals Corporation

Falcon Minerals is a C-Corporation formed to own and acquire high growth core-of-the-core oil and gas minerals which generate substantial free cash flow. Upon closing, Falcon Minerals will own mineral, royalty, and over-riding royalty interests covering 251,000 gross unit acres in the Eagle Ford and Austin Chalk in Karnes County, DeWitt County, and Gonzales County Texas.

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[1] Osprey defines free cash flow as EBITDA less capital expenditures.

[2] Osprey defines free cash flow yield as EBITDA less capital expenditures less interest divided by market capitalization at $10.00 per share.

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