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 (SRAQ) , a special purpose acquisition company (SPAC) put together by EOG Resources (EOG) ex-CEO Mark Papa. I liked the way Papa built EOG, but also the skill he showed in getting out of EOG before the collapse of oil in 2014. Papa was not just another mindless cheerleader for shale, like some other 'star' CEOs. 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 with Papa 'coming out of retirement': The structure of the SPAC vehicle, with its 'blank check' flexibility and zero debt, enabled it to take advantage of the coming bust and deleveraging of shale assets in 2016. Papa used these advantages, ultimately throwing his entire bankroll at Centennial Resources (CDEV) , a leveraged player in the hot Permian basin -- and becoming that company's CEO in the process. 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% return.
Now, along comes the second act: Silver Run Acquisitions II (SRUNU) -- a second $1.035 billion SPAC pushed forward by the same 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 (APC) and COO of Devon Energy (DVN) . Of course, the question is: Can the second act of this show be anywhere as good as the first?
It might be. But there are differences to note.
On the negative side, the environment for shale is not quite as desperate as when Papa was shopping around in 2016 -- although there are still massive consolidations yet to occur with shale players. The comps for acreage now, as oil is hovering near to $50, are much pricier. Finally, reorganization of shale is in its third year -- many of the bargains may already have been bought.
But there are a few positives for Hackett, as well. He has very strong connections to two of the biggest U.S. independents -- Anadarko and Devon -- both of whom have been engaged in an as yet incomplete push to shed assets and debt. Hackett is likely to get a 'first look' at coming asset sales from both companies, as the deleveraging continues. Even if his acquisitions for his SPAC don't come from these two, Hackett knows virtually everyone in the shale space.
Shares for Silver Run II IPO'd 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% 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 its sister offering.
