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CENAQ Energy Corp. *

CENAQ Energy Corp. *

Mar 1, 2021 by Matt Cianci

PROPOSED BUSINESS COMBINATION: Bluescape Clean Fuels Intermediate Holdings

ENTERPRISE VALUE: $280 million
ANTICIPATED SYMBOL: VGAS

CENAQ Energy Corp. proposes to combine with Bluescape Clean Fuels Intermediate Holdings, a supplier of gasoline derived from renewable feedstocks,

  • Bluescape Energy Partners, is an alternative investment firm that leverages its private capital, global network, and superior thinking to deliver differentiated long-term investment performance in the broader energy and utility sectors.
  • Bluescape Energy Partners employs a long-term perspective, helping position companies for growth and value creation by providing capital and strategic oversight with its multi-disciplined team of executive-level managers, operators, strategic consultants, and restructuring advisors.
  • It thrives to uncover investments exhibiting high-performance potential where it seeks to build lasting partnerships.

SUBSEQUENT EVENT – 2/14/23 – LINK

Amendment to Subscription Agreement

  • On February 13, 2023, Arb Clean Fuels and CENAQ entered into an amendment to the Arb Subscription Agreement (the “Arb Amendment”), pursuant to which, among other things,
    • (i) the Committed Amount was lowered to 1,500,000 shares for an aggregate purchase price of $15,000,000 and the Reduction Option was removed,
    • (ii) certain investors associated with Arb Clean Fuels agreed to purchase shares at the per share redemption price of approximately $10.31 per share in an aggregate amount equal to or greater than $14,250,000 from CENAQ’s redeeming stockholders and
    • (iii) if the Arb Investors purchased shares in an amount equal to or greater than $14,250,000, CENAQ will terminate the Arb Subscription Agreement on or prior to the Closing.

Termination of Subscription Agreement

  • On February 14, 2023, CENAQ and an Original PIPE Investor who agreed to purchase 200,000 shares for an aggregate purchase price of $2,000,000 in the Original PIPE agreed to terminate such investor’s subscription agreement due to the Terminating PIPE Investor purchasing 387,973 shares at the Per Share Redemption Price and for an aggregate amount of approximately $4,000,000 from CENAQ’s redeeming stockholders.

Subscription Agreements

  • On February 10, 2023 and February 13, 2023, CENAQ entered into separate subscription agreements with a number of investors, pursuant to which the New PIPE Investors have agreed to purchase, and CENAQ agreed to sell to the New PIPE Investors, an aggregate of 2,400,000 shares of Class A Common Stock for a purchase price of $10.00 per share, or an aggregate purchase price of $24,000,000, in a private placement (the “New PIPE”).
    • The New PIPE Investors include Cottonmouth Ventures LLC, a wholly-owned subsidiary of Diamondback Energy, Inc.
  • The closing of the New PIPE pursuant to the New Subscription Agreements is contingent upon, among other customary closing conditions, the concurrent consummation of the Business Combination. 
  • The combined company following the Business Combination is expected to receive $32,000,000 in proceeds from the Original PIPE (after taking into account the Terminations) and the New PIPE.
  • The terms of the New Subscription Agreements are substantially similar to those of the Original Subscription Agreements, including with respect to certain registration rights. In particular, the Combined Company is required to use commercially reasonable efforts to submit or file a registration statement to register the resale of such shares within thirty calendar days after the Closing.

Redemptions

  • At the completion vote, 15,403,880 shares were presented for redemption at $10.31/share

SUBSEQUENT EVENT – 12/30/22 – LINK

  • Of the $80,000,000 of commitments, Holdings has agreed to purchase 800,000 shares to be sold in the PIPE Financing for an aggregate commitment of $8,000,000, and Arb has agreed to purchase 7,000,000 shares to be sold in the PIPE Financing for an aggregate commitment of $70,000,000, provided, that, to the extent funds in the Trust Account immediately prior to Closing, after giving effect to the exercise of Redemption Rights, exceed the Trust Threshold, each $10.00 increment of such excess funds shall reduce Arb’s commitment by $10.00 up to a maximum reduction of $20.0 million.
  • Arb previously notified us as of the record date, November 7, 2022, that it had raised financing to purchase only 5,000,000 PIPE Shares for an aggregate of $50,000,000 (out of its full commitment of 7,000,000 PIPE Shares for an aggregate of $70,000,000).
  • As of the date of this Proxy Supplement, Arb has notified us that it has received nonbinding commitments to purchase only 3,000,000 PIPE Shares for an aggregate of $30,000,000.
  • Arb is continuing to raise funds necessary to purchase its full commitment.
  • If Arb does not fund its full commitment in accordance with the terms of its Subscription Agreement, we may not be able to satisfy the closing condition of having gross proceeds from the PIPE Financing of not less than $80,000,000 in order to consummate the business combination.
  • If such closing condition is not met or waived by Holdings and Intermediate in accordance with the terms of the Business Combination Agreement or if Holdings and Intermediate do not agree to amend such closing condition, we may not be able to consummate the business combination.

TRANSACTION

  • The business combination values BCF at an implied $280 million enterprise value and a pro forma equity value of approximately $500 million, assuming no redemptions.
  • Bluescape Holdings will receive shares of Verde Clean Fuels as consideration.
  • In connection with the transaction, investors led by Arb Clean Fuels Management LLC and Bluescape Holdings have committed to invest $80 million in a private placement of CENAQ’s Class A common stock at $10.00 per share immediately prior to the closing of the Business Combination.
  • The proceeds will be used to fund Verde Clean Fuels’ initial facility as well as future renewable gasoline facilities currently under development.
  • CENAQ may choose to raise additional capital prior to the closing of the Business Combination.
  • Assuming no redemptions from CENAQ shareholders, the economic ownership structure following the Business Combination is expected to be approximately: 46.5% Bluescape Holdings, 10.4% PIPE shareholders, 36.1% CENAQ public shareholders and 7.0% CENAQ’s sponsor, CENAQ Sponsor LLC.
  • Upon closing of the Business Combination, the combined company will be named Verde Clean Fuels, Inc.

CENAQ Transaction Overview

PIPE

  • Investors led by Arb Clean Fuels Management LLC and Bluescape Holdings have agreed to purchase an aggregate of 8,000,000 shares of Class A Common Stock for a purchase price of $10.00 per share, or an aggregate purchase price of $80,000,000.
  • Of the 8,000,000 shares of Class A Common Stock, Holdings has agreed to purchase, 800,000 shares for an aggregate purchase price of $8,000,000.
  • Additionally, Arb Clean Fuels Management LLC has agreed to purchase 7,000,000 shares for an aggregate purchase price of $70,000,000; provided, that, to the extent the funds in the Trust Account immediately prior to the Closing, after giving effect to the exercise of Redemption Rights, exceed $17,420,000, the Committed Amount shall be reduced by one share for every $10.00 in excess of $17,420,000 in the Trust Account; provided, further, that in no event shall the Committed Amount be reduced by more than 2,000,000 shares or the Committed Purchase Price be reduced by more than $20,000,000.

Subsequent Event – LINK

Amendment to Subscription Agreement

  • On February 13, 2023, Arb Clean Fuels and CENAQ entered into an amendment to the Arb Subscription Agreement (the “Arb Amendment”), pursuant to which, among other things,
    • (i) the Committed Amount was lowered to 1,500,000 shares for an aggregate purchase price of $15,000,000 and the Reduction Option was removed,
    • (ii) certain investors associated with Arb Clean Fuels agreed to purchase shares at the per share redemption price of approximately $10.31 per share in an aggregate amount equal to or greater than $14,250,000 from CENAQ’s redeeming stockholders and
    • (iii) if the Arb Investors purchased shares in an amount equal to or greater than $14,250,000, CENAQ will terminate the Arb Subscription Agreement on or prior to the Closing.

Termination of Subscription Agreement

  • On February 14, 2023, CENAQ and an Original PIPE Investor who agreed to purchase 200,000 shares for an aggregate purchase price of $2,000,000 in the Original PIPE agreed to terminate such investor’s subscription agreement due to the Terminating PIPE Investor purchasing 387,973 shares at the Per Share Redemption Price and for an aggregate amount of approximately $4,000,000 from CENAQ’s redeeming stockholders.

Subscription Agreements

  • On February 10, 2023 and February 13, 2023, CENAQ entered into separate subscription agreements with a number of investors, pursuant to which the New PIPE Investors have agreed to purchase, and CENAQ agreed to sell to the New PIPE Investors, an aggregate of 2,400,000 shares of Class A Common Stock for a purchase price of $10.00 per share, or an aggregate purchase price of $24,000,000, in a private placement (the “New PIPE”).
    • The New PIPE Investors include Cottonmouth Ventures LLC, a wholly-owned subsidiary of Diamondback Energy, Inc.
  • The closing of the New PIPE pursuant to the New Subscription Agreements is contingent upon, among other customary closing conditions, the concurrent consummation of the Business Combination. 
  • The combined company following the Business Combination is expected to receive $32,000,000 in proceeds from the Original PIPE (after taking into account the Terminations) and the New PIPE.
  • The terms of the New Subscription Agreements are substantially similar to those of the Original Subscription Agreements, including with respect to certain registration rights. In particular, the Combined Company is required to use commercially reasonable efforts to submit or file a registration statement to register the resale of such shares within thirty calendar days after the Closing.

LOCK-UP

Company & Sponsor:

  • The Company and the Insiders agreed not to transfer any shares until the earlier of
    • (A) six months after the completion of CENAQ’s initial business combination or
    • (B) if the last sale price of the Class A Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30 consecutive trading day period commencing at least 75 days after CENAQ’s initial business combination.

EARNOUT

  • CENAQ will cause OpCo to transfer to Holdings up to 3,500,000 Class C OpCo Units and a corresponding number of shares of Class C Common Stock, within 5 business days after the occurrence of a triggering event.
  • A triggering event occurs on the date on which the CENAQ volume-weighted average price for 20 trading days within any period of 30 consecutive trading days within the period beginning on the Closing Date and ending on the earlier of the five-year anniversary of such date or the date a Company Sale is consummated is greater than or equal to $15.00 or $18.00 (“Triggering Event I” and “Triggering Event II,” respectively).
  • Upon the occurrence of Triggering Event I within the Earn Out Period, an aggregate of 1,750,000 Class C OpCo Units (and a corresponding number of shares of Class C Common Stock) will be transferred to Holdings, and upon the occurrence of Triggering Event II within the Earn Out Period, an aggregate of 1,750,000 Class C OpCo Units (and a corresponding number of shares of Class C Common Stock) will be transferred to Holdings.

FORFEITURE AGREEMENT

  • Sponsor also agreed to subject 3,234,375 shares of the 3,487,500 shares of Class A Common Stock to potential forfeiture if Triggering Event I or Triggering Event II does not occur during the time period between the Closing Date and the earlier of the five-year anniversary of the Closing Date or the date a Company Sale is consummated (the “Forfeiture Period”).
  • 50% of the Sponsor Subject Shares will no longer be subject to forfeiture if Triggering Event I occurs during the Forfeiture Period and 50% of the Sponsor Subject Shares will no longer be subject to forfeiture if Triggering Event II occurs during the Forfeiture Period.
  • Prior to the occurrence of either Triggering Event I or Triggering Event II, Sponsor may not transfer any of its Sponsor Subject Shares.
  • If during the Forfeiture Period there is a Company Sale pursuant to which CENAQ or the holders of Class A Common Stock have the right to receive consideration implying a value of Class A Common Stock of greater than or equal to $15.00 or $18.00, respectively, then Triggering Event I or Triggering Event II will be deemed to have occurred.
  • If either Triggering Event does not occur during the Forfeiture Period, upon the expiration of the Forfeiture Period, the applicable Sponsor Subject Shares will immediately be forfeited to CENAQ for no consideration and immediately canceled.

NOTABLE CONDITIONS TO CLOSING

  • The obligations of the Bluescape Parties, CENAQ and OpCo to consummate the business combination are subject to CENAQ shall have at least $5,000,001 of net tangible assets

NOTABLE CONDITIONS TO TERMINATION

  • The Business Combination Agreement may be terminated by CENAQ or the Company, if:
    • (i) the Closing has not occurred prior to the date that is 270 days from signing (the “Outside Date”).
    • (ii) any governmental authority in the United States has enacted, issued, or entered any injunction, (whether temporary, preliminary or permanent) which has become final and non-appealable and has the effect of making consummation of the business combination illegal or otherwise preventing or prohibiting consummation of the business combination

ADVISORS

  • Imperial Capital is serving as financial advisor to CENAQ.
  • Vinson & Elkins L.L.P. is serving as legal counsel to CENAQ.
  • Kirkland& Ellis LLP is serving as legal counsel to BCF.
  • Baker Botts L.L.P. is acting as legal counsel to Imperial Capital.

MANAGEMENT & BOARD

Executive Officers

J. Russell Porter, 59
Chief Executive Officer and Director

Russell Porter has over 30 years of executive level experience in the oil and gas business with a strong background in property acquisition, energy finance, oil and natural gas marketing as well as conventional and unconventional resource business development. His experience has primarily been leading publicly traded upstream companies operating in the U.S. enhanced by previous work in the energy banking industry. From January 2019 to September 2020, Mr. Porter was Executive Chairman and Chief Executive Officer of Freedom Oil & Gas, Inc., an Australian listed E&P company with assets and operations in the Eagle Ford shale. Mr. Porter managed the liquidation of Freedom’s U.S. assets after the Australian parent and U.S. subsidiaries filed voluntary Chapter 11 proceedings in May 2020. From April 2018 until September 2000, Mr. Porter was Chief Operating Officer and subsequently President and Chief Executive Officer of Gastar. Gastar filed a voluntary Chapter 11 bankruptcy on October 31, 2018 after Mr. Porter’s departure. From April 1994 to August 2000, Mr. Porter served as Executive Vice President, along with various other leadership roles, at Forcenergy Inc. Mr. Porter holds a Bachelor of Science degree in Petroleum Land Management from Louisiana State University and a M.B.A. from the Kenan-Flagler School of Business at The University of North Carolina at Chapel Hill.

Michael J. Mayell, 73
President, Chief Financial Officer and Director

Mr. Mayell has over 52 years of experience in the oil and gas business with more than 38 years in top management positions of multiple E&P companies. Mr. Mayell has also served as the Chief Executive Officer and a director of Texas South Energy, Inc. (OTCMKTS: TXSO) since January 2017. Prior to joining Texas South, Mr. Mayell served as President, Chief Operating Officer and a director of The Meridian Resource Corporation which he co-founded in 1985. He served in those capacities at Meridian for over 20 years until it merged into Alta Mesa Holdings in 2010. Prior to Meridian, in 1982, Mr. Mayell founded and as served as President and CEO of Sydson Energy, Inc. which drilled and produced various properties in Louisiana, Oklahoma, and Texas. Sydson Energy and its affiliated companies continue to be active in 2021. Prior to his time at Meridian and Sydson, Mr. Mayell was Vice President of Engineering and Operations at Kirby Exploration Company with responsibility for all of the company’s activity in North America. Mr. Mayell began his career with Shell Oil Company in New Orleans, Louisiana with assignments in multiple engineering and operating groups both onshore and offshore South Louisiana. Mr. Mayell received his Bachelor of Science degree in Mechanical Engineering from Clarkston University.

David J. Porter, 64
Vice President – Regulatory

Mr. Porter has served as the President of Porter Production & Consulting Inc. since April 2017. Between January 2011 and December 2016, Mr. Porter served as a Railroad commissioner of the Railroad Commission of Texas. Mr. Porter holds a Bachelor of Science (BS) focused in Accounting from Harding University. He is a Certified Public Accountant issued by the Texas State Board of Public Accountants in October 1982.

Board of Directors

John B. Connally III, 74
Chairman of the Board

Mr. Connally has decades of experience in the formation, management and growth of exploration and production companies as well as numerous contacts within the energy and energy private equity communities. Mr. Connally has also served as chairman of the board of Texas South Energy, Inc. (OTCMKTS: TXSO) since January 2017. Mr. Connally currently serves as chairman of the Texas Lt. Governor’s Energy Advisory Board. Mr. Connally was a founding shareholder of Texas South and GulfSlope Energy, Inc., and a founding director of Nuevo Energy, Inc., Endeavor International Corp, Pure Energy Group (where he also served as chief executive officer) and Pure Gas Partners. Mr. Connally practiced corporate and securities and merger and acquisition law for the energy industry and investment banking industry as a partner at the law firm of Baker&Botts. He received both his Bachelor of Arts and JD from the University of Texas.

Benjamin Francisco Salinas Sada, 37
Director

In December 2013, Mr. Salinas founded Typhoon Offshore, a company to provide oil and gas services to PEMEX, with an innovative business model. In October 2015, Mr. Salinas was appointed as Chief Executive Officer of TV Azteca, Mexico’s second largest television broadcasting company. Mr. Salinas is the Founder and Chairman of BTC Investments, a firm organized as a Mexico-based multi-strategy investment management fund primarily allocating venture capital investments in seed, early, and late-stage start-ups from a wide range of sectors. Mr. Salinas holds a Bachelor’s Degree in Business Administration from the Instituto Tecnológicoy de Estudios Superiores de Monterrey, one of Mexico’s most prestigious universities.

Denise Dubard, 63
Director

Denise DuBard has served as Vice President and Chief Accounting Officer of Amplify Energy Corp. since August 2018. From March 2015 until July 2018, Ms. DuBard served as Chief Accounting Officer and Controller of Contango Oil & Gas Company. Ms. DuBard also served as Chief Financial Officer, Treasurer and Secretary of PetroPoint Energy Partners, LP from 2012 until August 2014, when the company was sold. Prior to that, Ms. DuBard served as a consultant with Axia Partners, a CPA advisory firm, providing accounting and finance related consulting services to the energy industry from December 2014 until March 2015. Ms. DuBard worked with Axia Partners as a consultant in the same capacity as mentioned above from 2009 to 2012. From 2005 to 2009 Ms. DuBard served as Vice President, Controller and Chief Accounting Officer for Rosetta Resources Inc., a public oil and gas company. Ms. DuBard started her career with Deloitte in the assurance practice and held accounting and consulting positions before 2005 at Sonat Offshore Drilling and Team, Inc. Ms. DuBard graduated with honors from Texas A&M University with a Bachelor of Business Administration degree in Finance and brings over 30 years of energy experience in accounting, finance and management.

Michael S. Bahorich, 64
Director

Mr. Bahorich has over 35 years of experience in upstream oil and gas with a background in finding and developing conventional fields and shale assets. He joined Apache in November 1996 and was a member of Apache Corporation’s senior management team from June 2000 to June 2015. From November 1981 to November 1996 he was a geophysicist, researcher and exploration manager with Amoco. Formerly, Mr. Bahorich was President of the Society of Exploration Geophysicists. Mr. Bahorich served as a director on two public boards, Energy XXI (between 2017 to 2018) and Global Geophysical Services (between 2011 to 2015), as well as two private boards, Premier Oilfield Group and SigmaCubed. Energy XXI filed for bankruptcy protection in April 2016. Global Geophysical Services filed for bankruptcy protection in March 2014 and August 2016. Mr. Bahorich holds a B.S. in Geology from the University of Missouri and an M.S. in Geophysics from Virginia Tech.

David Bullion, 57
Director

Mr. Bullion has over 30 years of experience in upstream oil and gas. He worked at BP plc (formerly The British Petroleum Company plc and BP Amoco plc) since July 1988, first as a field petrophysics in Alaska. At BP, Mr. Bullion held multiple positions including Asset Manager GOM Deepwater from March 2001 to December 2002, Business Development Technical Manager GOM Deep Water from January 2003 to January 2004, Resource Manager for Rockies U.S.A. from February 2004 to December 2005 and managed tight gas fields. After leaving BP in July 2008, Mr. Bullion became Vice President, General Manager for Red Willow LLC leading all operations for the firm in Texas, Oklahoma, Louisiana, and the Gulf of Mexico until his departure in May 2010. Most recently, he has been involved with multiple acquisition and divestment projects advising both buyers and sellers. Mr. Bullion has a BS and MS in Geophysics from Texas A&M University and attended MIT Sloan School of Business Project Academy while at BP.

David Wallace, 50
Director

From January 2012 to March 2017, Mr. David Wallace was the President of Merchant Trading, and from October 2012 to March 2017 was a Member of the Board of Directors of Castleton Commodities International, LLC (CCI), an international commodities trading and investment firm. He was responsible for all trading activities of CCI in its offices in Stamford, Houston, Calgary, Montevideo, Singapore, Shanghai, and Geneva. Prior to CCI, Mr. Wallace was Head of Business Development at the CCI predecessor entity, Louis Dreyfus Highbridge Energy (LDHE — a joint venture between the Louis Dreyfus Group, and Highbridge Capital Management) from December 2009 to January 2012. Prior to LDHE, Mr. Wallace held various investment and advisory positions at GE Energy Financial Services and Credit Suisse First Boston. Mr. Wallace started his career as an attorney, working at White and Case. Mr. Wallace holds a JD from New York University School of Law, and a BA in philosophy, and a BBA in finance from Southern Methodist University.

ByMatt Cianci