United States securities and exchange commission logo
September 22, 2023
Diego Rojas
Chief Executive Officer
HNR Acquisition Corp
3730 Kirby Drive, Suite 1200
Houston, TX 77098
Re: HNR Acquisition
Corp
Amendment No. 4 to
Preliminary Proxy Statement on Schedule 14A
Filed September 11,
2023
File No. 001-41278
Dear Diego Rojas:
We have reviewed your filing and have the following comments. In
some of our
comments, we may ask you to provide us with information so we may better
understand your
disclosure.
Please respond to these comments within ten business days by
providing the requested
information or advise us as soon as possible when you will respond. If
you do not believe our
comments apply to your facts and circumstances, please tell us why in
your response.
After reviewing your
response to these comments, we may have additional comments.
Amendment No. 4 to Preliminary Proxy Statement on Schedule 14A
Cover Page
1. We note you disclose
that approval of the Purchase Proposal, Incentive Plan Proposal, the
NYSE American Proposal
and the Adjournment Proposal each require the affirmative
vote of a majority of
votes cast by holders of shares of SPAC Common Stock present in
person or by proxy at
the Special Meeting and entitled to vote thereon. You also
disclose that approval
of the Charter Proposal requires the affirmative vote of the holders
of a majority of the
SPAC Common Stock entitled to vote. This appears inconsistent with
your disclosure that a
failure to vote or provide voting instruction for the Purchase
Proposal and the
Charter Proposal will have the same effect as a vote Against the
Purchase Proposal and
Charter Proposal, but will have no effect on the outcome of any
other proposal in this
proxy. Please revise or advise.
2. We note you disclose
here and elsewhere that the holders of OpCo Class B units will be
required to exchange
all of their Class B Units (a Mandatory Exchange ) upon the
Diego Rojas
FirstName LastNameDiego Rojas
HNR Acquisition Corp
Comapany 22,
September NameHNR
2023 Acquisition Corp
September
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occurrence of the following: (i) upon the direction of the Company
with the consent of at
least fifty percent (50%) of the holders of OpCo Class B Units; or
(ii) upon the one-
year anniversary of the Mandatory Conversion Trigger Date. However,
you disclose on
page 28 that the Mandatory Exchange will occur upon the Mandatory
Conversion Trigger
Date. Please advise or revise.
Summary Term Sheet, page 1
3. We note the transactions contemplated by the membership interest
purchase agreement,
as amended and restated on August 28, 2023, will result in your
post-purchase company
organized in an "Up-C" structure. Please tell us whether the parties
to the MIPA also
entered into a tax receivable agreement, as is typically the case with
Up-C structures. If
so, please expand your disclosures throughout the proxy to provide
details for this related
agreement, and also file a copy of the agreement as an annex or
exhibit.
Q: What is an "Up-C" structure?, page 14
4. Please expand your disclosure to explain the business or strategic
rationale for use of the
"Up-C" structure. Please also highlight any significant tax or other
material benefits to
CIC as Partner/Seller so long as it owns interests directly through
Units of OpCo.
Summary of the Proxy Statement
Impact of the Purchase on HNRA's Public Float, page 33
5. Please revise to disclose all possible sources and extent of dilution
that shareholders who
elect not to redeem their shares may experience in connection with the
business
combination. For example, please disclose the impact of the OpCo Class
B Units, the
OpCo Preferred Units and the Preferred Stock PIPE at each of the
redemption levels
detailed in your sensitivity analysis, including any needed
assumptions. We also note your
disclosure on page 35.
Ownership Structure of HNRA after the Closing, page 34
6. We note that the chart reflects that OpCo Class B common units and
OpCo Preferred
Units are held by CIC Partner/Seller. Please revise this chart to
include the number
of OpCo Class B common units and OpCo Preferred Units held by CIC
Partner/Seller. In
addition, quantify the percentage of equity interests to be held in
OpCo by CIC
Partner /Seller.
Summary of the Proxy Statement
Opinion of RSI & Associates, page 39
7. Please expand your disclosure to clarify that RSI & Associates'
amended fairness opinion
is based on the Cobb & Associates 3rd Party Engineering Study as of
December 31, 2022
revised on April 25, 2023 to exclude the 10% overriding royalty
interest now held by
Pogo Royalty, LLC. This comment also applies to the disclosure on page
123 and in the
Diego Rojas
FirstName LastNameDiego Rojas
HNR Acquisition Corp
Comapany 22,
September NameHNR
2023 Acquisition Corp
September
Page 3 22, 2023 Page 3
FirstName LastName
RSI & Associates, Inc. amended fairness opinion included as Annex C.
Unaudited Pro Forma Combined Financial Information
Notes to Unaudited Pro Forma Combined Financial Statements
Note 3 - Preliminary Price Allocation, page 92
8. We note under the 50% redemption scenario you indicate the purchase
price consideration
includes the full amount of the Promissory Note to Sellers of Pogo and
the issuance of
85,000 OpCo Preferred Units. However, we note pro forma adjustment (N)
reflects the
issuance of only $13,307,21 in principal under Seller Promissory Note,
and there is no
issuance of OpCo Preferred Units under the scenario on the pro forma
balance sheet.
Please address this inconsistency.
9. Please revise the details depicting the preliminary purchase price
under the maximum
redemption scenario to indicate 2,000,000 OpCo Preferred Units will be
issued rather than
85,000 OpCo Preferred Units.
Note 4 - Adjusted to Pro Forma Combined Financial Information, page 93
10. We note pro forma adjustment (D) reflects the issuance of 2,000,000
OpCo Class B units
issued to the sellers of Pogo. Please refer to the guidance in FASB
ASC 810-10-45-16,
and revise your pro forma balance sheet to present the Seller's
ownership interest in OpCo
as a noncontrolling interest rather than Additional paid in capital or
explain in further
detail why it is appropriately classified within your equity.
11. In the note for pro forma adjustment (E) you state that you are
required to pay
the $1,300,000 deferred underwriter commission in cash 90 days after
the closing date.
Please include a pro forma adjustment to reflect this obligation as a
current liability.
12. We understand the maturity note of the promissory note is six months
from the closing of
the transactions contemplated by the MIPA. Please revise pro forma
adjustment (N) to
present the outstanding principal of the promissory note as a current
liability.
Adjustments to Unaudited Pro Forma Combined Statements of Operations, page 94
13. Please revise your pro forma statements of operations to present net
income or loss from
continuing operations attributable to the controlling interest as
required by Rule 11-
02(a)(5) of Regulation S-X.
Unaudited Pro Forma Combined Financial Information
Notes to Unaudited Pro Forma Combined Financial Information
6. Supplemental Oil and Gas Reserve Information (Unaudited), page 97
14. Please expand the discussion of the pro forma estimates of proved oil
and gas reserves and
discounted future net cash flows prepared by William M. Cobb &
Associates to reference
the pro forma reserve reports, as of December 31, 2021 (updated July
12, 2023) and
2022 (updated April 25, 2023), respectively, which exclude the 10%
overriding royalty
Diego Rojas
FirstName LastNameDiego Rojas
HNR Acquisition Corp
Comapany 22,
September NameHNR
2023 Acquisition Corp
September
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FirstName LastName
interest not acquired in the amended transaction. Also, identify the
corresponding
attachments filed as Annex D and Annex E, respectively, and modify
Table of Contents
to clarify these reports represent the pro forma estimates, e.g.
excludes the 10% overriding
royalty interest not acquired in the amended transaction. Refer to the
disclosure
requirements in Item 1202(a)(8) of Regulation S-K and FASB ASC
932-235-50-10 and
50-36.
15. Please modify the pro forma presentations of the estimated net
quantities of oil and gas
reserves (page 97), the standardized measure of discounted future net
cash flows (page
98), and the changes in standardized measure (page 98) to reconcile
the original
transaction estimates for the historical HNR Acquisition Corporation
and Pogo Resources,
LLC to the current amended transaction estimates (reduced by the 10%
overriding royalty
interest) for Pogo Resources, LLC and the resulting Pro Forma Combined
estimates.
16. The pro forma summary of changes in estimated proved reserves includes
"revisions of
previous estimates" which references footnote (1); however, footnote
(1) and its
accompanying explanation are not provided. Please revise your
disclosure to provide the
referenced footnote to identify and quantify each individual factor
that contributed to the
overall change in the line item. If two or more unrelated factors are
combined to arrive at
the overall change, your revised disclosure should separately identify
and quantify each
factor, including offsetting factors, so the change in net reserve
quantities between periods
is fully explained. Refer to the disclosure requirements in FASB ASC
932-235-50-5.
Background of the Purchase, page 114
17. Please substantially expand your disclosure to discuss the negotiation
of key aspects of the
proposed transaction, including the "Up-C" structure, A&R MIPA, Option
Agreement,
Backstop Agreement, the Escrow Agreement, Board Designation Agreement
and PIPE
Investment. Your discussion should include the underlying reasons for
the negotiation of
such structure and agreements, and identify the individuals that
participated in any
negotiation and the material terms negotiated. For example, clarify
how the parties
determined the type and amount of consideration and the rational for
reducing the
purchase price from $120 million in the Original MIPA to $90 million
in the A&R MIPA
and the rationale for receiving an updated opinion from RSI &
Associates.
Fairness Opinion of RSI & Associates, Inc., page 123
18. We note RSI & Associates, Inc. has updated their fairness opinion.
Please clarify whether
HNRA paid an additional fee for the revised opinion. In this regard we
note
your disclosure regarding the aggregate fee of $54,210 is unchanged in
this amendment.
Proposal No. 3 - The NYSE American Proposal, page 137
19. We note that Proposal No. 3 does not include the 2,000,000 OpCo Class
B Units that
comprise a portion of the Aggregate Consideration for the Target
Interests. Please advise
or revise.
Diego Rojas
HNR Acquisition Corp
September 22, 2023
Page 5
Information About Pogo
Crude Oil and Natural Gas Data, page 145
20. Please file the reserves reports prepared by William M. Cobb &
Associates including the
10% overriding royalty interests as of December 31, 2021 and 2022
(updated March 23,
2023) consistent with the estimate presented on pages 147, 148, F-64,
F-66 and F-67 and
list these reports in the Table of Contents. Also, expand the
discussion on pages 145, 146,
148, and F-64 to identify the reports shown in the Table of Contents
and clarify that the
estimates of proved oil and gas and discounted future net cash flows
represent Pogo
Resource, LLC total interests including the 10% overriding royalty
interests not acquired
by HNR Acquisition Corporation in the transaction. Refer to the
disclosure requirements
in Item 1202(a)(8) of Regulation S-K and FASB ASC 932-235-50-10 and
50-36.
Beneficial Ownership of Securities, page 211
21. Please revise your beneficial ownership table to include the
beneficial interest in voting
securities held by HNRAC Sponsors LLC. In that regard, we note your
tabular disclosure
on page 33 states that all 2,501,250 of the Founders Shares are owned
by the Sponsor and
its transferees. Please also revise your disclosure to identify the
natural person or persons
who have voting and/or investment control of the shares held by Pogo
Royalty, LLC and
advise why you have removed Seller from the beneficial ownership
table. Refer to Item
403 of Regulation S-K and Exchange Act Rule 13d-3.
Where You Can Find More Information, page 216
22. Please incorporate by reference your current reports on Form 8-K filed
August 30, 2023
and September 13, 2023.
Annex, page A-1
23. Please file a complete copy of the A&R MIPA at Annex A, including all
exhibits.
General
24. We note your disclosure that in connection with the transactions
contemplated by the
MIPA, you may complete the Preferred Stock PIPE Investment. Please
update your
disclosure to discuss the current status of the Preferred Stock PIPE
Investment. In that
regard, we note your disclosure on page 20 and risk factor disclosure on
page 74 indicates
that you may not have sufficient cash to close the Purchase if you are
not able to complete
the Preferred Stock PIPE Investment and a substantial number of public
stockholders
FirstName LastNameDiego Rojas
exercise their redemption rights. In addition, when known, please
disclose if the SPAC
Comapany NameHNR
Sponsor, Acquisition
directors, officers orCorp
their affiliates will participate in
the potential Preferred
Stock
September 22,PIPE
2023Investment.
Page 5
FirstName LastName
Diego Rojas
FirstName LastNameDiego Rojas
HNR Acquisition Corp
Comapany 22,
September NameHNR
2023 Acquisition Corp
September
Page 6 22, 2023 Page 6
FirstName LastName
25. Please provide a summary of the purpose and effect of the Backstop
Agreement, including
whether and how certain parties to the business combination or their
affiliates may benefit
from the Backstop Agreement.
26. We note the Seller Promissory Note is payable within six-months
following the closing of
the transaction contemplated in the MIPA. Please discuss the impact
such Seller
Promissory Note will have on your liquidity and capital resources
after the closing of the
purchase. Also, disclose the source of the funds to be used to make
such payments.
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
You may contact Jenifer Gallagher, Staff Accountant, at (202) 551-3706
or John
Cannarella, Staff Accountant, at (202) 551-3337 if you have questions regarding
comments on
the financial statements and related matters. You may contact Sandra Wall,
Petroleum Engineer,
at (202) 551-4727 or John Hodgin, Petroleum Engineer, at (202) 551-3699 with
questions
regarding the engineering comments. Please contact Liz Packebusch, Staff
Attorney, at (202)
551-8749 or Karina Dorin, Staff Attorney, at (202) 551-3763 with any other
questions.
Sincerely,
Division of
Corporation Finance
Office of Energy
& Transportation
cc: Matthew Ogurick