Buffalo Bills and Sabres owner Terry Pegula is looking to become a bigger player in the depressed oil and natural gas business.
Pegula, who sold much of his natural gas business a decade ago at the peak of the industry's shale boom, now is planning to sell stock in a new venture that would raise $300 million from investors to purchase oil and natural gas businesses at a time when the energy industry is reeling.
The new venture, called East Resources Acquisition Co., would be based in Pegula's hometown of Boca Raton, Fla. Pegula would be chairman, CEO and president of the new business, while his wife, Kim, would be a director. The Pegulas would own 20% of the new venture after the stock sale. All of the top executives in the new business currently are top officials at Pegula's other businesses.
Pegula's plan is to use the money raised through the stock sale to build an energy business at a time when the value of energy companies and oil and gas properties have plummeted.
With oil prices dropping to around $40 a barrel and natural gas prices dropping below $2 per 1,000 cubic feet – their lowest in decades – Pegula believes this is a good time to buy energy businesses and properties. Prices are depressed and long-term sentiment toward the industry has turned negative because of the push to move away from higher-polluting oil and gas fuels in favor of renewable energy sources.
"The current commodity price and capital cycles have brought about asset transaction valuation levels in the energy market not seen since the early 2000s," the company said in a filing with the Securities and Exchange Commission.
The company said the current depressed environment within the energy industry is similar to what occurred in the early 2000s, when Pegula bought natural gas fields that became the foundation for his East Resources business. In 2010, Pegula sold much of his natural gas business to Royal Dutch Shell for $4.7 billion. Four years later, in 2014, he sold another business in which he was the majority owner, HG Energy, to American Energy Partners for $1.75 billion.
Those sales provided Pegula with the cash he then used to buy the Sabres and the Bills and build the HarborCenter hotel and ice rink complex next to KeyBank Center, among other ventures that also include a country music recording studio.
"Commodity prices have declined recently to levels not seen in decades," the company said in the filing. In addition, both public and private capital available to the [exploration and production] sector have become scarce, limiting the pool of potential asset purchasers, as well as existing companies’ operational flexibility and ability to refinance debt, much of which is maturing in the next few years."
With commuters now working from home and demand for energy dropping sharply at businesses and manufacturers dealing with reduced demand because of the Covid-19 outbreak and the recession it caused, many energy companies that borrowed heavily to drill wells now are facing bankruptcy as the scramble to make their debt payments.
On Monday, Chevron Corp. offered to pay $5 billion for oil producer Noble Energy in a deal that analysts said valued Noble's proven oil reserves at just $5 a barrel, far below the spot price. Earlier this year, National Fuel Gas Co. agreed to pay $500 million for many of the same natural gas fields that Pegula had sold to Royal Dutch Shell a decade ago for nearly $4.7 billion.
Even Pegula's existing energy businesses have been affected by the downturn. His JKLM Energy business stopped drilling new wells last July because of the plunge in energy prices.
"We believe that current market conditions again present an opportunity for attractive acquisitions at valuations supported by existing production and cash flow, with minimal value ascribed to undeveloped resource potential," East said in the filing.
If demand for the stock sale is high, it's possible that the initial public offering could raise as much as $345 million.
The planned stock sale comes at a time when many of Pegula's sports-based businesses are reeling because of the coronavirus outbreak. The Sabres season ended early. The Bills season is set to get underway later this month, but possibly without any fans in attendance. Its hospitality operations have been hammered by the plunge in travel caused by the lockdown, prompting hundreds of job cuts and furloughs across the operations of the businesses operated by Pegula Sports and Entertainment.