Overview of Oil & Gas Private Equity
Oil & Gas Investors Since 1992
Overview of Oil & Gas Private Equity Lane Britain Partner PetroCap, LLC
What Is Energy Private Equity? • “Private Equity” is any illiquid, private investment in a company or project • Began with investments by individuals/families - now dominated by institutional private equity funds • Institutional energy private equity funds became popular in the late 1980’s and have grown significantly over the past 30 years • Currently $100 Billion of upstream and midstream energy private equity ready to be spent(1)
Source: (1) Preqin Natural Resources Online November 2016
2
Where Does the Money Come From? North American Based Energy Investor by Type 2% 1% 2%
Foundation 3%
Endowment Plan
4%
24%
Public Pension Fund
5%
Private Sector Pension Fund
6%
Family Office Wealth Manager Insurance Company
15% 21%
Asset Manager Fund of Funds Manger
17%
Investment Company Other
Source: Preqin Natural Resources Online November 2016
3
Typical Private Equity Fund Structure
Investors Private Equity Firm (General Partner)
Private Equity Fund (Limited Partnership) 10-12 year life
Investment/Portfolio Company 1
Investment/Portfolio Company 2
Firm has investment discretion - 5 years to find investments - 10 years (or remaining fund life) to hold investments
Investment/Portfolio Company 3
4
Energy Private Equity Landscape in 2006
Green = Upstream Operator; Yellow = Upstream Allocator; Red = Power; Maroon = Midstream; Blue = Services; Purple = Clean Energy; Gray = Debt Strategy; Brown = Diversified; Dark Red = Royalty; Pink = Energy Technology
Note: Manager positions on the chart are based on Cambridge Associates' qualitative analysis. The size of the "bubble" corresponds to the size of the most recent fund raised by that manager, i.e., the larger the fund, the larger the bubble and vice versa. The Y-axis represents the scope/mandate of the strategy and includes both sector and geographic considerations.
5
Current Energy Private Equity Landscape
Green = Upstream Operator; Yellow = Upstream Allocator; Red = Power; Light Blue = Midstream; Light Green = Services; Purple = Clean Energy; Blue = Debt Strategy; Brown = Diversified; Gray = Royalty; Pink = Energy Technology
Note: Manager positions on the chart are based on Cambridge Associates' qualitative analysis. The size of the "bubble" corresponds to the size of the most recent fund raised by that manager, i.e., the larger the fund, the larger the bubble and vice versa. The Y-axis represents the scope/mandate of the strategy and includes both sector and geographic considerations.
6
Trends in Private Equity •Large non-energy focused private equity funds becoming more active (KKR, Blackstone, Carlyle) •Majority of funds focused on $100 Million+ investments •Blank check commitment harder to find – need an asset •Focused primarily on Core of the Core unconventional properties •Path to a public exit – IPO or sell acreage to public company •Growing number of funds/PE portfolio companies focused on non-control non-op positions •Drillco and mezz funds focused on funding PUD drilling 7
PetroCap Overview PetroCap was founded in 1992 and is 100% employee owned
Approximately $500 million of Committed Capital • Falcon E&P Opportunities Fund (Fund I) was formed in 2010 with $163 million in commitments • PetroCap Partners II (Fund II) was formed in 2014 with $350 million in commitments • Fund I invested in 9 projects with 7 operators and Fund II has made 4 commitments to date
PetroCap is a Project Investor Direct investments in working interest rather than backing management teams • Strategy focused on Upstream or E&P segment
Preferred Project Profile None or some current production (0% to 30% of investment) with development upside (70% to 100% of investment)
• PetroCap seeks to own a majority interest in projects and have approval authority over development program
• Targets 25% IRR and 2x ROI – Fund returns capital quarterly
• $20 to $75 million investment target (acquisition and drilling capital net to PetroCap)
• Typically holding period is 3-5 years
• Typically does not use leverage
8
PetroCap vs. Traditional Energy PE Traditional PE • Sponsor makes an equity commitment to company and is the majority shareholder • Sponsor has complete control of company and employees • Management signs noncompete agreements • Determines when to buy/sell • Sponsor sits on board of directors
PetroCap • Working interest partner on a existing project or new acquisition • PetroCap has an internal technical team to complement operator’s team • Interfaces like another operator • Only control over project/AMI • Operator has freedom to work on other projects with other partners • Cannot drag interest/force sale
• Provide overhead coverage for full team
• Pays project-level overhead
• Typically have multiple operators in each basin
• PetroCap typically has one operating partner per basin
• Management team earns back-in through IRR and ROI hurdles
• Operator earns back-in after ROI hurdles 9
PetroCap – Staffed Like an Oil and Gas Company Lane Britain
Doug Evans
David Hopson
Managing Director
Managing Director
Managing Director
Marc Manzo
Dick Rinehart
John Sears
Managing Director
Senior Advisor
Senior Advisor
Philip Kreick Vice President Operations
Chase Summers Petroleum Engineer
Steve Fremgen Geology
Lynne Fiske Accounts Receivable
John Walters Vice President Finance
William Ridgway
Victoria Irwin Land
Amy Ward Accounts Payable
Finance Associate
Kayla Miles Executive Assistant/ Office Manager
Member of Investment Committee
10
Important Notes and Disclosures •
PetroCap is a registered investment advisor (RIA) under the Investment Advisers Act of 1940, as amended. PetroCap is located in Dallas, Texas. PetroCap may only transact business in those states or countries in which it is registered or qualifies for an exemption or exclusion from registration requirements.
•
The account may make a limited number of investments. A consequence of a limited number of investments is that the aggregate returns realized by the partners of the account may be substantially adversely affected by the unfavorable performance of a small number of these investments.
•
The business of investing in oil and gas is highly competitive and the account may not be successful in identifying suitable oil and gas properties, acquiring those properties on favorable terms or diversifying its investments.
•
Prices for oil and gas are volatile – decreases or increases may negatively impact the account’s results of operations and the amount of cash that the account may distribute.
•
Environmental laws and other legislation and governmental regulations may adversely affect the account’s operations, including restricting drilling.
•
Because private oil and gas investments are illiquid, the account may have difficulty disposing of its investments at optimal times or at optimal value.
•
Because the account intends to rely on the business experience and contacts of the PetroCap principles to execute the account’s investment strategy, the departure of either of those principals may make it more difficult for the account to achieve its investment goals.
11
Overview of Oil & Gas Private Equity Lane Britain Partner PetroCap, LLC
What Is Energy Private Equity? • “Private Equity” is any illiquid, private investment in a company or project • Began with investments by individuals/families - now dominated by institutional private equity funds • Institutional energy private equity funds became popular in the late 1980’s and have grown significantly over the past 30 years • Currently $100 Billion of upstream and midstream energy private equity ready to be spent(1)
Source: (1) Preqin Natural Resources Online November 2016
2
Where Does the Money Come From? North American Based Energy Investor by Type 2% 1% 2%
Foundation 3%
Endowment Plan
4%
24%
Public Pension Fund
5%
Private Sector Pension Fund
6%
Family Office Wealth Manager Insurance Company
15% 21%
Asset Manager Fund of Funds Manger
17%
Investment Company Other
Source: Preqin Natural Resources Online November 2016
3
Typical Private Equity Fund Structure
Investors Private Equity Firm (General Partner)
Private Equity Fund (Limited Partnership) 10-12 year life
Investment/Portfolio Company 1
Investment/Portfolio Company 2
Firm has investment discretion - 5 years to find investments - 10 years (or remaining fund life) to hold investments
Investment/Portfolio Company 3
4
Energy Private Equity Landscape in 2006
Green = Upstream Operator; Yellow = Upstream Allocator; Red = Power; Maroon = Midstream; Blue = Services; Purple = Clean Energy; Gray = Debt Strategy; Brown = Diversified; Dark Red = Royalty; Pink = Energy Technology
Note: Manager positions on the chart are based on Cambridge Associates' qualitative analysis. The size of the "bubble" corresponds to the size of the most recent fund raised by that manager, i.e., the larger the fund, the larger the bubble and vice versa. The Y-axis represents the scope/mandate of the strategy and includes both sector and geographic considerations.
5
Current Energy Private Equity Landscape
Green = Upstream Operator; Yellow = Upstream Allocator; Red = Power; Light Blue = Midstream; Light Green = Services; Purple = Clean Energy; Blue = Debt Strategy; Brown = Diversified; Gray = Royalty; Pink = Energy Technology
Note: Manager positions on the chart are based on Cambridge Associates' qualitative analysis. The size of the "bubble" corresponds to the size of the most recent fund raised by that manager, i.e., the larger the fund, the larger the bubble and vice versa. The Y-axis represents the scope/mandate of the strategy and includes both sector and geographic considerations.
6
Trends in Private Equity •Large non-energy focused private equity funds becoming more active (KKR, Blackstone, Carlyle) •Majority of funds focused on $100 Million+ investments •Blank check commitment harder to find – need an asset •Focused primarily on Core of the Core unconventional properties •Path to a public exit – IPO or sell acreage to public company •Growing number of funds/PE portfolio companies focused on non-control non-op positions •Drillco and mezz funds focused on funding PUD drilling 7
PetroCap Overview PetroCap was founded in 1992 and is 100% employee owned
Approximately $500 million of Committed Capital • Falcon E&P Opportunities Fund (Fund I) was formed in 2010 with $163 million in commitments • PetroCap Partners II (Fund II) was formed in 2014 with $350 million in commitments • Fund I invested in 9 projects with 7 operators and Fund II has made 4 commitments to date
PetroCap is a Project Investor Direct investments in working interest rather than backing management teams • Strategy focused on Upstream or E&P segment
Preferred Project Profile None or some current production (0% to 30% of investment) with development upside (70% to 100% of investment)
• PetroCap seeks to own a majority interest in projects and have approval authority over development program
• Targets 25% IRR and 2x ROI – Fund returns capital quarterly
• $20 to $75 million investment target (acquisition and drilling capital net to PetroCap)
• Typically holding period is 3-5 years
• Typically does not use leverage
8
PetroCap vs. Traditional Energy PE Traditional PE • Sponsor makes an equity commitment to company and is the majority shareholder • Sponsor has complete control of company and employees • Management signs noncompete agreements • Determines when to buy/sell • Sponsor sits on board of directors
PetroCap • Working interest partner on a existing project or new acquisition • PetroCap has an internal technical team to complement operator’s team • Interfaces like another operator • Only control over project/AMI • Operator has freedom to work on other projects with other partners • Cannot drag interest/force sale
• Provide overhead coverage for full team
• Pays project-level overhead
• Typically have multiple operators in each basin
• PetroCap typically has one operating partner per basin
• Management team earns back-in through IRR and ROI hurdles
• Operator earns back-in after ROI hurdles 9
PetroCap – Staffed Like an Oil and Gas Company Lane Britain
Doug Evans
David Hopson
Managing Director
Managing Director
Managing Director
Marc Manzo
Dick Rinehart
John Sears
Managing Director
Senior Advisor
Senior Advisor
Philip Kreick Vice President Operations
Chase Summers Petroleum Engineer
Steve Fremgen Geology
Lynne Fiske Accounts Receivable
John Walters Vice President Finance
William Ridgway
Victoria Irwin Land
Amy Ward Accounts Payable
Finance Associate
Kayla Miles Executive Assistant/ Office Manager
Member of Investment Committee
10
Important Notes and Disclosures •
PetroCap is a registered investment advisor (RIA) under the Investment Advisers Act of 1940, as amended. PetroCap is located in Dallas, Texas. PetroCap may only transact business in those states or countries in which it is registered or qualifies for an exemption or exclusion from registration requirements.
•
The account may make a limited number of investments. A consequence of a limited number of investments is that the aggregate returns realized by the partners of the account may be substantially adversely affected by the unfavorable performance of a small number of these investments.
•
The business of investing in oil and gas is highly competitive and the account may not be successful in identifying suitable oil and gas properties, acquiring those properties on favorable terms or diversifying its investments.
•
Prices for oil and gas are volatile – decreases or increases may negatively impact the account’s results of operations and the amount of cash that the account may distribute.
•
Environmental laws and other legislation and governmental regulations may adversely affect the account’s operations, including restricting drilling.
•
Because private oil and gas investments are illiquid, the account may have difficulty disposing of its investments at optimal times or at optimal value.
•
Because the account intends to rely on the business experience and contacts of the PetroCap principles to execute the account’s investment strategy, the departure of either of those principals may make it more difficult for the account to achieve its investment goals.
11
