Danny Rice-led SPAC to Combine with NET Power in Deal Valued at $1.5 Billion

Rice Acquisition Corp. II (RACII), a blank check company led by former Rice Energy Inc. CEO Danny Rice, will merge with NET Power to deliver “clean, reliable and low-cost power” from natural gas, the company said Dec. 14.

Rice Acquisition Corp., a special purpose acquisition company (SPAC), valued the combination’s pro forma enterprise value at $1.459 billion. The value includes $235 million in commitments from the Rice family, Occidental Petroleum and other investors. The company’s existing strategic shareholders include Occidental, Baker Hughes, Constellation and 8 Rivers.

NET Power’s shareholders, representing approximately 70% of pro forma ownership (assuming no redemptions), are leaders in the energy industry with deep experience across energy production, energy transportation, power generation, manufacturing, operations, sales, services and CO₂, the company said in a press release.

NET Power is an asset-light technology licensor with rights to a substantial and growing intellectual property portfolio. Each technology license is expected to generate approximately $65 million of present value (PV10) net to NET Power.

The company bills itself as a “clean energy technology company” that invents, develops and licenses a proprietary process designed to efficiently generate clean electricity from natural gas

Danny Rice will lead the new company, Net Power Inc., through commercialization, succeeding current NET Power CEO Ron DeGregorio.

“Today, around 60% of global power generation comes from coal and natural gas-fired power plants that produce reliable and low-cost power,” Rice said. “However, these plants collectively emit nearly 14 billion tonnes of CO₂ per year, accounting for approximately 37% of total global emissions. By replacing these plants with NET Power’s proven technology, we can eliminate nearly 100% of these emissions while providing reliable and low-cost power that people deserve.”

Transaction details

Assuming no redemptions, the transaction is expected to provide NET Power with approximately $535 million of cash net of transaction fees, consisting of $347 million of cash in trust – of which $10 million is subject to a non-redemption agreement – and $225 million of PIPE commitments.

Total committed investment of $235 million is comprised of $100 million from the Rice Family and affiliates through a $90 million PIPE commitment and $10 million non-redemption agreement, and PIPE commitments of $100 million from Occidental, $5 million from 8 Rivers, $5 million from Constellation, and $25 million from other investors.

Net proceeds of $200 million secured through the committed investments are expected to fully fund corporate operations through commercialization, with expected commissioning in 2026. Net proceeds above $200 million are expected to advance and support commercialization, including funding of SN1.

Existing NET Power shareholders are rolling 100% of their equity into the combined company and will own approximately 70% of the pro forma equity assuming no redemptions.

The business combination, which was recommended to RAC II’s board of directors (the “RAC II Board”) by RAC II’s management team, has been unanimously approved by the RAC II Board and is expected to close in second-quarter 2023, subject to certain closing conditions, including receipt of approval by holders of a majority of the shares held by RAC II’s shareholders.

The business combination was also recommended to NET Power’s board of directors by NET Power’s management team and has been unanimously approved by the NET Power Board.

Partnerships with Occidental, Baker Hughes

Vicki Hollub, president and CEO of Occidental, said, “We are excited to support this transaction, which will further NET Power’s commercialization plans and help achieve decarbonization goals globally. We first invested in NET Power because we believe the technology can accelerate Oxy’s efforts to reduce emissions in our existing operations and ultimately supply emissions-free power to the direct air capture [DAC] sites and sequestration hubs we are developing.”

Occidental is advancing feasibility studies to incorporate NET Power plants into DAC hubs being developed by its 1PointFive subsidiary, where approximately 30-40 plants could provide enough clean power for a DAC program capturing 100 million-135 million tonnes of CO₂ per year.

“We have long believed that if you can use natural gas, generate reliable electricity and capture the resulting emissions, you would change the world,” retiring CEO Ron DeGregorio said. “For over a decade, NET Power has worked tirelessly to prove its game-changing technology, which we did through our demonstration facility in La Porte, Texas.”

“Following the strategic investment and partnership with Baker Hughes to deliver key turbomachinery for future NET Power plants, this transaction properly capitalizes NET Power and enables the company to commercialize this revolutionary technology,” he continued. “The Rice Group is a logical strategic partner, and I am excited to hand the reins to Danny to lead NET Power.”

Rod Christie, executive vice president of Industrial & Energy Technology at Baker Hughes, said, “Our strategic partnership focused on technology development and accelerating market positioning and deployment of the NET Power solution presents a clear path to commercialize near-zero emission natural gas power around the world. The combination of NET Power with Rice Acquisition Corp. II further reinforces the path towards making that progress a reality.”

Net Power realized several key milestones over the past year, including:

• Proving the technology: In November 2021, the company’s demonstration facility in La Porte, Texas, synchronized to the grid, proving the oxy-combustion and supercritical CO₂ process.
• Preparing for commercialization: In early 2022, the company formed a strategic partnership with Baker Hughes to design and manufacture key plant equipment including turboexpanders.
• Compelling economics: Passage of the Inflation Reduction Act in 2022 increased the 45Q tax credit for CO₂ sequestration.
• De-risking commercialization: In November, NET Power announced its plan to develop and build its first utility-scale project with the support of its strategic shareholders. The project, located at an Occidental-hosted site near Odessa, Texas, targets 300 megawatts (MW) of near-zero-emissions power and is designed to significantly de-risk the commercialization of NET Power’s technology.

Guggenheim Securities LLC acted as lead financial adviser to RAC II. Barclays Capital Inc. also served as financial adviser to RAC II. Kirkland & Ellis LLP served as legal counsel.

Credit Suisse Securities (USA) LLC acted as financial adviser and capital markets adviser to NET Power. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. served as legal counsel to NET Power.

Barclays Capital Inc. and Citigroup Global Markets Inc. acted as capital markets advisers to RAC II. Barclays Capital Inc. and Citigroup Global Markets Inc. acted as lead placement agents and Credit Suisse Securities (USA) LLC acted as co-placement agent on the PIPE. Vinson & Elkins L.L.P. served as legal counsel to the capital markets advisers and placement agents.