Even though the Delaware Basin has already experienced a blockbluster year of A&D activity, the basin can add yet another deal to its rosters.

KLR Energy Acquisition Corp. (NASDAQ: KLRE, KLREU, KLREW) said Dec. 20 it entered a business combination agreement with privately-held Tema Oil and Gas Co. to form a pure-play named Rosehill Resources Inc. with assets in the Delaware core and a veteran management team.

Rosehill will control 4,771 net acres in Loving County, Texas, and more than 6,000 barrels of oil equivalent per day of net production projected for January. The anticipated pro forma enterprise value of the combined company is roughly $445 million, according to the release.

“Following the business combination, we will immediately begin to accelerate development of the Tema assets while also pursuing focused acquisitions,” J. A. (Alan) Townsend, president of Tema, said in a statement.

Tema’s assets include about 200 potential drilling locations equating to nearly nine years of inventory using a two-rig program with additional upside through a downspacing program. The company also has operated properties elsewhere in Texas, according to its website.

Rosehill will be run by Tema’s management team with Townsend as CEO. Gary Hanna, chairman and CEO of KLR Energy, will serve as Rosehill’s chairman. The company expects to have $117 million of projected liquidity to fund its development plan.

“This transaction represents exactly the type of business combination target we were seeking to provide to our investors when we took KLR Energy public earlier this year,” Hanna said in a statement.

KLR Energy is a special purpose acquisition entity, also referred to as a “blank check company.” The company set out early 2016 with Hanna, former CEO of EPL Oil & Gas Inc., at its helm to pursue the acquisition of one or more existing companies using proceeds from its IPO.

In March 2016, KLR Energy closed its IPO of 8 million units at $10 per unit, generating $80 million in gross proceeds. EarlyBirdCapital was the sole book-running manager for the offering.

KLR Energy is sponsored by KLR Energy Sponsor LLC, an affiliate of KLR Group Holdings LLC. As Rosehill, the company will apply to continue trading on the NASDAQ under ROSE, ROSEU and ROSEW.

As part of the business combination agreement, Tema will contribute its properties and related assets to Rosehill.

KLR Energy will acquire 39% of Rosehill's equity on a fully diluted basis for $35 million in cash, the assumption of $55 million in debt and the contribution of remaining cash proceeds from its IPO and a $75 million private placement of preferred stock and warrants to certain institutional investors.

In addition, Rosemore Inc., Tema’s parent company, and KLR Energy Sponsor agreed to purchase up to $20 million of Rosehill’s preferred or common stocks to backstop redemptions.

Together, the proceeds of the private placement and backstop will be used to fund a portion of the cash consideration necessary for the business combination and for general corporate purposes.

The business combination was unanimously approved by the companies' boards of directors and is expected to close first-half 2017, subject to certain closing conditions, including receipt of KLR Energy shareholder approval.

Following closing, Rosemore and its affiliates will collectively be the single largest stockholder of Rosehill Resources. KLR Energy is expected to retain an equity stake in Rosehill with two representatives on the company’s board.

BMO Capital Markets and KLR Group are capital market advisers and private placement agents to KLR Energy. Vinson & Elkins LLP is KLR Group’s legal counsel. Petrie Partners LLC is financial adviser and Norton Rose Fulbright US LLP is legal counsel to Rosemore and Tema.

Emily Patsy can be reached at epatsy@hartenergy.com.