ENCAP L.P.

about that time natural gas prices, after attract seasoned management teams with com mitments in the industry to attract EnCap Investments L.P. languishing for over a decade, were demonstrable track records of success and support the best management teams. ap proaching $3.00 per MCF and along and solid value creation strategies. came something called the Barnett Shale. Certainly, one of our core strengths What are the most attractive When EnCap Investments was from the extensive industry contacts we market was becoming increasingly We did our first deal in the Barnett in is the experience and cohesiveness of Qupstream opportunity sets today? Qcreated 25 years ago, the firm’s four had on the other. We began by forming competitive with new entrants signifi - 2000 and then proceeded to march from our staff. EnCap’s four From a big-picture perspective, both managing partners saw opportunity in a mezzanine fund to effectively provide cantly altering the risk-return equation. one economically-advantaged resource founding partners have led EnCap the upstream and midstream sectors are very uncertain economic times. What “stretch” bank financing with a mid-teens We believed that would play to the next over the ensuing dozen since its inception and have a working highly capital-intensive. The IEA esti - formed the basis of the decision to return objective. We also formed a reserve represent a superior value proposition, or so years. Horizontal drilling and relationship that spans almost 35 years. mates that approximately $750 billion launch the firm? ac quisition fund to pursue attractive oil coupled with the fact that our interests continued advances in completion We also have a very deep “bench” with per year will be required worldwide Both public and private capital were and gas acquisition opportunities targeting would be better aligned with manage - technology led to further opportunity the six partners below the founders to offset production declines and generate extremely scarce after the collapse of oil similar returns. ment teams, so we started our first private for our teams in both unconventional having an average of over 23 years of oil new reserves to meet increased long-term and gas prices in the mid-1980s. equity fund in 1994. In 2001, EnCap and conventional resource plays. and gas industry experience and an demand. We believe that in and of itself However, we were aware of several What drove your evolution from Fund III was the first fund to focus on While many private equity firms average tenure with the firm of 14 years. suggests there will continue to be hands-full of institutional investors, Qa firm focused on mezzanine debt backing start-up management teams were slow to respond to these new op - EnCap has consistently generated sig nificant investment opportunity. principally life companies, that and acquisition funds to private equity? that possessed deep experience and portunities, EnCap embraced them. superior returns across multiple hydro - The industry has seen a dramatic were still willing to entertain an oil and In the late 1980s there were very few ex pertise in the oil and gas industry. Since 2008, EnCap has sold close to 40 carbon price cycles by applying a low-risk, shift from vertical to horizontal drilling gas opportunity. When we formed mezzanine players in the industry. Ten We believed that partnering with companies that were involved in various disciplined philosophy that balances cap - and the implementation of advanced EnCap in 1988, our business plan was to years later there were more than 30 the premier teams in the industry and resource plays, resulting in gross sales ital preservation and value creation. We completion technologies. These tech - become a conduit be tween those insti - mezzanine providers, which had the ef - developing a relationship-driven model proceeds of roughly $20 billion and ensure that our management teams focus niques were initially tested in emerging tutional capital sources on one hand fect of driving returns down and credit would create substantial value for our some $8.5 billion of distributions to our on the most economically advantaged shale plays like the Barnett, Haynesville, and oil and gas investments emanating risk up. Similarly, the reserve acquisition investors and management teams. institutional partners. areas and strategies, adapt to changing Eagle Ford and the Bakken. More recent Since inception, more than 95% of the market conditions, and build asset bases applications include conventional “tight $18 billion of capital we have managed What are the key drivers of and opportunity sets that are attractive to rock” formations like the Granite Wash has been focused on backing start-up QEnCap’s success? the universe of buyers. and the Permian Basin’s Wolfcamp for - management teams and then re-backing Consistency is the hallmark of EnCap’s EnCap takes a rigorous approach mation. Promising new plays like the many of those teams on the heels of track record. Preqin’s Global Private to risk management. We monitor in - Utica and the Cline Shale continue to successful exits. Equity Survey 2012 ranks EnCap as one vestments and market conditions closely emerge with current development activity of the most consistent private equity and advance capital incrementally as focused on oil and liquids-rich areas How has the private-equity land - managers overall and the top manager management teams identify compelling with superior economics. Many areas Qscape shifted over the last 25 years in the oil and gas industry. In fact, opportunities and create value through the consist of multiple hydrocarbon types and how has EnCap changed with it? EnCap is the only energy private equity successful execution of their business plans. and offer repeatable opportunities. EnCap has consistently sought in - firm that has had six consecutive top- Stacked pays offer substantial option vest ment opportunities with the most quartile funds. EnCap’s funds have also What do you look for in a value and the potential to exploit more attractive risk-reward profiles, and that has substantially outperformed the S&P Qmanagement team and what mature areas through the application of required that both we and our portfolio Energy Index and energy commodities differentiates EnCap’s value-added modern technologies. companies have the ability to adapt to over the life of the funds. contributions to the teams in your Our sense is the foremost opportu - changing market dynamics. During most In total, EnCap has raised 17 insti - portfolio? nities continue to be centered in the of the 1990s, our portfolio companies tutional oil and gas investment funds We look for teams with a history of economically-advantaged, lower-risk largely pursued acquire-and- exploit aggregating more than $18 billion. Over successful value creation grounded in drilling plays. Broadly speaking, the growth strategies, which involved “buy - the past 25 years, EnCap has invested strong technical and operational back - M&A market for oil and gas assets ap - ing right” from the majors and large nearly $10 billion in just over 200 com - grounds. EnCap backs teams with an pears to be intensely competitive, but we in dependents, doing some lower risk panies . One hundred and fifty of those entrepreneurial mindset and a risk have had portfolio companies selectively development work on the acquired investments have been realized, resulting management philosophy that is consistent identify and capture highly attractive properties, and then selling to public in returns that have consistently exceeded with ours. We also place the highest reserve acquisitions in every fund and we E&P companies. However, around the our targets of a 2.0x ROI and a 25% IRR. value on integrity, honesty and open believe that will continue to be the case. turn of the century, that strategy became Our ability to attract the highest qual - communication. Today, with a $5-billion less attractive economically as the same ity management teams in the industry is upstream-focused fund and a $1.75- people we were selling to, i.e., the small central to our success. Over EnCap’s long billion midstream fund via our partner - Seated, L-R: Gary Petersen (managing partner), David Miller (managing partner), to mid-cap public E&P companies, history, we have established a strong ship with Flatrock Energy Advisors, Marty Phillips (managing partner). Standing: Murphy Markham, Doug Swanson, Jason DeLorenzo, began to compete with our portfolio rep utation as an innovative, value-added EnCap is strategically positioned to Jason McMahon. Bob Zorich (managing partner), Wynne Snoots, Sean Smith. companies for M&A deals. Fortunately source of capital. This has allowed us to provide some of the largest equity www.encapinvestments.com

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