Transcript Energy Trust Partners LP

Energy Trust Partners LP
IPAA Oil & Gas Investment Symposium
Private Capital Conference
April 18, 2005
Energy Trust Partners
Overview
Private equity fund manager with exclusive focus on the
exploration and production sector of the energy industry
Mission is to generate high financial returns by teaming with
capable operators to build oil and gas reserve value at the lowest
cost possible, and exiting opportunistically
Energy Trust Partners
Overview
Energy Trust Partners LP
($112 MM)
Fund I
• Formed in February 2002
• Seven portfolio investments with
equity commitments ranging from
$10 to $22 MM
• Investment period now closed
• Most portfolio companies continue
in their growth phases
Energy Trust Partners II LP
(projected $250-$300 MM)
Fund II
• Initial closing in March 2005
with $220MM in commitments
• Plan to invest in 8-12 portfolio
companies
• Investment range of $15-$50
MM per transaction
Energy Trust Partners
Investment Strategy
Objective to achieve high returns through drilling, property acquisitions
and/or exploitation strategies
– Work with experienced management teams with strong records of success
– Exit opportunistically through company or asset sales
Since inception of Fund I, have favored “drillbit” strategies over “reserve
acquisition” strategies
– Highly competitive acquisition market; strong “seller” marketplace
– Drilling economics are attractive; service costs are rising but margins remain strong
due to high product prices
Through selection of portfolio companies we want to diversify risk:
– By area (geographically, geologically)
– By prospect type (exploratory, development)
Energy Trust Partners
Fund I – Summary
Energy Trust Partners LP
$112 Million
Hackberry
Partners
Ballard/ETP
Denali
Oil & Gas
Suemaur/ETP
Infinity
Resources
Avalon
Oil & Gas
Orion Energy
Resources
Inception Date
6/02
10/02
6/03
9/03
2/04
6/04
8/04
ETP Ownership
90%
90%
28.1%
97.5%
33.3%
76.9%
80%
Partner
Mayne & Mertz, Ballard Expl.
Houston/Midland Company,
Houston
Denali
Mgmt. Team,
Houston
Suemaur Expl.
& Prod.,
Corpus Christi
Infinity
Mgmt. Team,
Oklahoma City
Avalon
Mgmt. Team,
Tulsa
Orion
Mgmt. Team
Tulsa
Operating Area
S. LA, AL/FL
Panhandle Area
S. TX and
N. LA
S. TX
KS, OK, TX,
NM, S. LA
OK
Arkoma Basin
CBM in OK
Onshore Gulf
Coast, TX/LA
Energy Trust Partners
Investment Process
Identify
Opportunities
Evaluate &
Analyze
Structure,
Close and
Manage
We conduct proactive calling efforts, and research active operators
in target areas.
We thoroughly review track records by examining historic full cycle
costs (land, seismic and drilling) against economic returns (net cash
flows and remaining reserves) over a 3-5 year period. Business plan
is to repeat success in similar activities and areas.
We negotiate an investment structure based on risk/reward profile
with meaningful performance incentives for the operators.
We build business as a partner, with management handling day to
day decisions and ETP active in all strategic and capital decisions.
Exit
We remain attune to market conditions and opportunities for
successful exits.
Energy Trust Partners
Investment Process
Accelerate our process by:
– Presenting us a focused business plan that describes succinctly how you plan to build
value
– Tell us specifically how your past experience and expertise ties to your business plan. Is
your expertise and past experience relevant to your future plan?
– Introduce the full management team to us. Is your track record associated directly with
this team?
– Show us your actual prospect or acquisition inventory
Why some deals don’t work
– Proposed business plan departs from historic “core competency” of the management
team (different areas or techniques)
– Management team too incomplete
– Management’s proposal doesn’t allow us to align our interests closely enough
Energy Trust Partners
Investment Structure
Typical deal structure:
– Management contributes existing assets (and/or cash), and ETP contributes cash, to an
existing or newly formed pass through entity on a “side by side” basis.
– Fair valuation of existing assets (leases, seismic, reserves) to determine initial equity
ownership; proved reserves require independent engineering.
– Distributions shared ratably on an unpromoted basis until first payout achieved
(generally return of capital plus interest factor).
– Thereafter, management receives incentive distributions in form of back in interests.
Typical governance provisions:
– ETP functions as active board participant with approval rights on budget authorizations
(capital expenditures, G&A, etc.), asset sales, issuance of debt or other equity securities,
hedges, etc.
– ETP retains unilateral “drag-along” exit rights after a certain period of time.
Energy Trust Partners
Investment Structure
Typical reporting or communication:
– Communication is key – good news or bad
– Drilling reports, production reports, quarterly and annual financial reports
– Annual financial audits and annual independent engineering reports
– Quarterly Board meetings/reviews in person or conference call
– Periodic technical reviews of new prospects/projects
Energy Trust Partners
Capital for Exploration
Exploration not well understood by institutional investors
– Perceived as very high risk
– Institutions more accustomed to acquisitions/exploitation
Nature of exploration makes participation more difficult
– Business requires long lead times and heavy front end costs; G&G assets (seismic,
leasehold) often difficult to value
– Exploration cycle is continuous; does not easily fit discreet time periods for “build up
and sale transaction” that institutions prefer
Nature of Explorationists
– Accustomed to industry participants, and thus prefer “project” investment over
“company” investment structures
– Often unwilling to share company ownership; complicates alignment of interest and exit
objectives of institutions
Energy Trust Partners
Why Us?
ETP has experience working with exploration teams
– Success in working with smaller, niche operators
– History with Fund I companies
– Objective to support more drill-bit strategies in Fund II
We understand the risks associated with the business
– Knowledgeable energy investor with in house technical expertise
– Will invest side by side with operator; not in a preferred or senior position
Energy Trust Partners
General Partner
Dedicated GP team includes Alan Hsia, Leland White, Karla Mercer
and Patrick Swearingen, with support from 19 other members of
Energy Spectrum (Dallas, TX) and Energy Trust, LLC (New York,
NY).
Experienced in private oil and gas investments, energy financing and
asset acquisitions and divestitures.
Energy Trust Partners
General Partner
Located in two offices:
551 Fifth Avenue, 37th Floor
New York, NY 10176
5956 Sherry Lane, Suite 900
Dallas, TX 75225
Alan Hsia
212-557-0868
Leland White
214-987-6104
[email protected]
[email protected]
Patrick Swearingen
212-557-0869
Karla Mercer
214-987-6121
[email protected]
[email protected]