energy trust partners lp ipaa oil & gas investment symposium private capital conference april...
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Energy Trust Partners LP
IPAA Oil & Gas Investment SymposiumPrivate Capital Conference
April 18, 2005
Energy Trust Partners
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
Overview
Energy Trust PartnersOverview
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
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)
Investment Strategy
Energy Trust Partners LP$112 Million
Hackberry Partners
Ballard/ETP Denali
Oil & GasInfinity
Resources Suemaur/ETP
AvalonOil & Gas
Orion EnergyResources
Inception Date6/02
ETP Ownership90%
PartnerMayne & Mertz,Houston/Midland
Operating AreaS. LA, AL/FLPanhandle Area
10/02
90%
Ballard Expl. Company,Houston
Onshore Gulf Coast, TX/LA
6/03
28.1%
Denali Mgmt. Team,Houston
S. TX andN. LA
9/03
97.5%
Suemaur Expl.& Prod.,Corpus Christi
S. TX
2/04
33.3%
Infinity Mgmt. Team,Oklahoma City
KS, OK, TX,NM, S. LA
6/04
76.9%
Avalon Mgmt. Team,Tulsa
OK
8/04
80%
Orion Mgmt. TeamTulsa
Arkoma BasinCBM in OK
Energy Trust PartnersFund I – Summary
Energy Trust PartnersInvestment Process
Identify Opportunities
Evaluate & Analyze
Structure, Close and Manage
Exit We remain attune to market conditions and opportunities for successful exits.
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.
Energy Trust PartnersInvestment 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 PartnersInvestment 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 PartnersInvestment 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 PartnersCapital 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 PartnersWhy 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 PartnersGeneral 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 PartnersGeneral Partner
Located in two offices:
551 Fifth Avenue, 37th FloorNew York, NY 10176
Alan Hsia212-557-0868
Patrick Swearingen212-557-0869
5956 Sherry Lane, Suite 900Dallas, TX 75225
Leland White214-987-6104
Karla Mercer214-987-6121