encap investments l.p. 1 ipaa midyear meeting 2008 denver, colorado july 21, 2008 jason delorenzo,...
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EnCap Investments L.P.1
IPAA Midyear Meeting 2008Denver, Colorado
July 21, 2008
Jason DeLorenzo, Managing Director
EnCap Investments L.P.2
EnCap Investments L.P.
Provided over 150 companies with growth capital
Managed aggregate capital commitments of $6.5 billion
EnCap acts as a fiduciary for institutional investors and is responsible for investment decisions and management of the portfolio (no LP influence)
Consistent returns across multiple industry price cycles
Commencing fundraising efforts for EnCap Energy Infrastructure Fund, L.P., a midstream-focused fund
OverviewLeading provider of capital to the independent sector of the U.S. oil and gas industry since 1988
EnCap Investments L.P.3
EnCap Investments L.P.Organization
Brent Bechtol
Mng. Dir.Jason DeLorenzo
Mng. Dir.Murphy Markham
Mng. Dir.Jason McMahon
Mng. Dir.Sean Smith
Mng. Dir.Wynne Snoots
Mng. Dir.Doug Swanson
Mng. Dir.Mark Burroughs
Vice Pres. Mitch Hovendick
Vice Pres.Brad Thielemann
Vice Pres.Mark Welsh
Vice Pres.Matt Crystal
Assoc.Ryan Devlin
Assoc.Kyle Kafka
Assoc. Scott Smetko
Assoc.
UPSTREAM FUND ENCAP INVESTMENT STAFF
ADMINISTRATIVE STAFF
Bobby Haier
CFOMelissa Standley
Tax ManagerDonna Wright
ControllerJohn Stricker
Sen. Acct.Audrey White
Sen. Acct.
David Miller
PartnerGary Petersen
PartnerMarty Phillips
PartnerBob Zorich
Partner
PRINCIPALS
INVESTOR RELATIONS
Hallie Kim
Mng. Dir.
INFRASTRUCTURE FUNDFLATROCK INVESTMENT STAFF
Billy Lemmons
PartnerDennis Jaggi
PartnerBill Waldrip
PartnerDennis McCanless
Mng. Dir.Bryan Danmier
Sen. Eng.Cat McMindes
EngineerEric Winscher
EngineerPam Jauer
Eng. Analyst Tommy Waldrip
AnalystJana Jackson
AnalystRaji Hoffman
Admin. Manager
EnCap Investments L.P.
EnCap Investments L.P.EnCap Energy Capital Fund VII
Fund Size: $2.5 billion
150+ limited partners
Consists of public pensions, insurance companies, university endowments, energy banks, foundations and wealthy family trusts
Investment Mandate
Private Equity
Transaction Size: $40MM to $200MM
Upstream Sector
Focused on North America (select international investments)
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EnCap Investments L.P.
EnCap Investments L.P.
Honesty, Integrity and Forthrightness
Strong technical and operational backgrounds
Well-defined business plan / value creation strategy consistent with experience
Adaptability
Common understanding of risk management
Receptive to “partnership” relationship
Management Team Attributes
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EnCap Investments L.P.
Alignment of interests:
Skin in the game
Incentive structure - they make money when we do
Involved in everything they are doing
Competitive advantages:
Geographic focus
Land position
Technical/operational niche
Business development/relationships
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EnCap Investments L.P.EnCap Considerations
EnCap Investments L.P.7
EnCap Investments L.P.Management Considerations
Economic considerations:
Terms
Capital available (size of provider)
Required management contribution (skin in the game)
Relationship considerations:
Cultural “fit”
Track record / reputation
Understanding of the industry (seen both up and down cycles)
Source of deal flow
EnCap Investments L.P.
Lower-risk drilling strategies
Resource plays / unconventional gas
Acquisition of acreage in known producing provinces with limited initial capital exposure. As drilling success warrants and as hard value is created the capital program is “ramped up” for acreage and drilling.
Joint venture partnerships with large independents and majors with “long” land positions
Value creation through the application of new technologies to conventional reservoirs with inconsistent production histories
Traditional acquire and exploit strategies
Infrastructure opportunities related to successful development drilling
Private Equity Company Strategies
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EnCap Investments L.P.
EnCap Investments L.P.
EnCap Investments L.P.
Equal emphasis on capital preservation and value creation
Investment Strategy / Philosophy
Back seasoned management teams with compelling business plans and like-minded approach to risk management
Multi-basin strategy provides asset diversification
Capital generally advanced in tranches as attractive opportunities are presented and proof of concept is established
Engineerable reserve value substantially underpins invested capital
Sell assets when the market will pay a premium
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EnCap Investments L.P.
EnCap Investments L.P.
Proven money-makers have demonstrable track record of creating value
Initial commitments typically larger
Receive somewhat more favorable terms
Greater upfront spending flexibility
Unproven teams
Typically betting on a strong technical / business development team coming out of a large independent or major
Early focus on strategy and risk management
Differentiation between Proven and Unproven Teams
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EnCap Investments L.P.
EnCap Investments L.P.Private Equity Myths
Over involved in business
Exercise too much control / influence
Board representation is a function of size of investment
19 out of 20 times we say “yes”
Do not tell people who to . . . what to . . . when to . . .
Generally do not require anything more than banks
Impatient money
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EnCap Investments L.P.
EnCap Investments L.P.Deal Structure / Management Incentive
EnCap generally contributes 95%+ of equity capital
Company is organized as a tax efficient flow-through vehicle, usually an LLC
Capital structure incorporates senior bank debt in addition to private equity
Multi-tiered “waterfall” back-in arrangement positions management to earn a blended 20%-25% of the company
Structure produces alignment of interest between EnCap and management
Both EnCap and management have board representation
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EnCap Investments L.P.
Drilling success
Category shifting
Premium for size
Public/private market arbitrage
Being someone’s “strategic acquisition”
Running room
Captured sufficient land
Repeatability of proven concept
Value Creation – About more than buying low and selling high
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EnCap Investments L.P.
EnCap Investments L.P.
What makes a quality asset? Hard to generalize, but…
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Operated – control your destiny
High value drilling economics
Long life
Abundance of upside opportunities
Multiple pay horizons, infill drilling, field extensions…
High margin
Low transportation costs/differentials (infrastructure)
High btu gas/sweet crude
High net revenue interest (NRI)
Bottom line: is someone else going to want to buy it from you?
EnCap Investments L.P.
EnCap Investments L.P.15
EnCap Investments L.P.EnCap Energy Infrastructure Fund, L.P.
EnCap has had success with midstream investments in the past
Flatrock principals average nearly 30 years of experience each, working as a team
Provide technical expertise and deal flow
Significant investment opportunity in midstream as a result of large E&P budgets, particularly in the resource plays
Will adhere to EnCap’s core philosophies
Value creation and capital preservation
Partner with seasoned management teams
Alignment of interest
Risk management
A midstream focused fund with a dedicated investment staff of midstream professionals
EnCap Investments L.P.16
EnCap Investments L.P.Flatrock’s Extensive Industry Contacts – Over 125 Clients
Eagle Rock Energy, inc.
Aka Energy Group, LLC Southern Ute Indian Tribe
Jason DeLorenzo, Managing Director
Copyright EnCap Investments L.P 2007
Houston Office1100 Louisiana
Suite 3150Houston, TX 77002
(713) 659-6100
Dallas Office3811 Turtle Creek Blvd.
Suite 1080Dallas, TX 75219(214) 599-0800