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J.P. Morgan announced that Jonathan (Jon) Ernst joined the Corporate Client Banking and Specialized Industries (CCBSI) business unit within commercial banking, as an executive director in the energy group. Based in Dallas, he will focus on the E&P sector across the bank’s south region.

With over 15 years of banking experience, Ernst was recently a senior vice president on the energy investment banking team for Jefferies LLC, focused on M&A, debt and equity financings, joint ventures, restructurings and recapitalizations. Throughout his career, he has worked closely with private and public companies across the upstream, midstream, downstream, oilfield services and coal sectors. Ernst received a Bachelor’s in Business Administration from Texas Christian University. Mike Lister, the head of CCBSI’s Energy Group, said, “Jon’s a great addition to the team, with deep industry expertise and knowledge of the local market that will be valuable in helping our clients meet their financial goals.”

In July, Simmons Energy, a division of Piper Jaffray, said it named Spencer Rippstein, Andrew Schroeder and Sanjiv Shah as new co-heads of energy investment banking, effective immediately. Fred Charlton, current chairman, managing director and head of energy investment banking, will remain as chairman and managing director. In 2018, Shah was named a Forty Under 40 honoree by both the Houston Business Journal and Oil and Gas Investor.

In 2017 and 2018, the Simmons energy team closed more than 170 transactions. The latest one this year, which closed in May 2019, was the IPO of Rattler Midstream LP, which was co-managed by Simmons. It also advised Concho Resources Inc. in its recent JV with Solaris Water Midstream LLC in the northern Delaware Basin. In addition, Simmons co-managed the IPO of Brigham Minerals in April. 

S&P Global assessment Energy prices have become increasingly volatile, and that volatility, along with increased leverage and liquidity pressures, has led to several recent defaults in the oil and gas sector among some speculative-grade companies—10 just since the start of 2019, S&P Global Ratings said. But are those companies complete anomalies? Probably not, concluded S&P in a recent report. “There may be yet more defaults, or even bankruptcies, to come among lower-rated oil and gas companies,” S&P said. 

Capital review

In a remarkable turnaround, the second quarter of 2019 was the first threemonth period on record when U.S. shale operators achieved positive cash flow from operations after accounting for capital expenditures, according to Rystad Energy.

The energy research and consultancy based in Norway studied the financial performance of 40 dedicated U.S. shale companies, focusing on cash flow from operating activities (CFO). This is the cash that is available to expand the business (via capital expenditure, or capex), reduce debt or return to shareholders.

In the second quarter of 2019, 35% of operators in the peer group balanced their spending with operational cash flow, and they reported an accumulated $110 million surplus in CFO versus capex.

“That is an industry first,” said Rystad Energy senior analyst Alisa Lukash.

In the first half of 2019, U.S. E&P companies raised a record low $4.8 billion, compared to an average semiannual issuance of $16.4 billion since 2014. No pure U.S. shale operator has made a public offering since Magnolia Oil & Gas’ initial public offering in 2017, according to a report by Rystad Energy.

"This leaves the industry with fewer options to boost capital guidance throughout the remainder of 2019, as operators had significantly frontloaded capital budgets this year, leaving 46% of guided capex for the second half of the year.”

Rystad said it is important to note that the slowdown in spending doesn’t directly translate into the elimination of production growth, as there is a natural lag between budgeted capital, fracking, completion and first oil. Enverus’ (formerly Drillinginfo) analysis of the second quarter pointed to different data, where it found the energy industry raised $16.9 billion in aggregate funds via public equity and debt offerings. That total was down 36% from the same quarter a year ago, according to Drillinginfo.

The firm’s analyst, Andrew Dittmar, said, “In a particularly poor showing, the upstream and oilfield service sectors combined to raise only $300 million from fresh equity and $2.5 billion from bond issuances.”

Upstream saw $261 million in public equity raised in the second quarter, through a sole offering, the IPO of Brigham Minerals, and was down 75% year-over-year. It was the upstream sector’s second-worst equity-raising quarter since 2010, the firm said.

Private equity news

WildFire Energy I LLC, an exploration and production company in Houston, signed a line of equity arrangement exceeding $1 billion from management and funds affiliated with Warburg Pincus and Kayne Anderson Private Energy Income Funds. WildFire is a new venture led by CEO Anthony Bahr and president and COO Steve Habachy, both long-time veterans of the oil and gas industry who were most recently executives at WildHorse before it was sold to Chesapeake Energy Corp.  WildFire will focus on acquiring and developing onshore assets with significant existing production throughout the Lower 48.

Kayne Anderson also announced an equity commitment of $100 million from Kayne Anderson Energy Fund VIII and the management team of newly formed E&P Indianola Energy LLC, which is led by Chapman Amend and Todd Bergamy. The new Houston-based company will acquire and develop assets in resource 
plays in “highly proven” areas, they said, and form partnerships with other producers to speed up development of their undeveloped acreage.

Amend was formerly an operations executive with El Paso E&P who also has led two private E&Ps, and Bergamy was formerly on the energy team at Kayne Anderson Energy Capital.

Pegasus Resources LLC, a mineral and royalty buyer in Fort Worth, secured an additional equity commitment of $300 million from EnCap Investments, bringing the total commitment to $600 million. The focus is still the Midland and Delaware basins.

Three Rivers Natural Resources Holdings IV LLC, Austin, received an equity commitment of up to $500 million from Riverstone Holdings Inc., again with CEO Mike Wichterich targeting the Permian Basin. This is the partners’ fourth such deal.

Glendale Energy Ventures, Houston, and TPG Sixth Street Partners, formed an oil and gas investment partnership with an initial $500 million in capital commitments. They have already made a non-op investment in Oklahoma’s Stack play to the tune of $55 million. Glendale is a private oil and gas company that makes direct asset level investments in upstream oil and gas assets across the United States. It provides capital solutions to operators through joint ventures, non-operated joint development partnerships and nonoperated acquisitions.
Two private equity firms, Quantum Energy Partners and Post Oak Energy Capital and other investors announced in April that they have a binding agreement to sell substantially all of the assets of Oryx Southern Delaware Holdings LLC and Oryx Delaware Holdings LLC (collectively, “Oryx”) to funds managed by Stonepeak Infrastructure Partners, for a cash purchase price of approximately $3.6 billion. Oryx is the largest privately held crude oil midstream system in the Permian Basin, and it is based in Midland. It is underpinned by acreage dedications from 20 operators, including Concho Resources and WPX Energy.

Worthy of recognition

Kayne Anderson Capital Advisors, Trilantic North America and TPG Growth Partners were named to Inc. magazine’s list known as the “Top 50 Founder-Friendly Private Equity Firms.” All three are active in providing equity to upstream and/or midstream investments.

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