The abundance of capital and the relatively high commodity prices that have run for a long time are creating an abundance of cash flow. "For us it's a double-edged sword-the excess capital is clearly driving returns down on the acquisition side from my perspective," says Hallie A. Vanderhider, president and chief operating officer of Houston-based Black Stone Minerals Co. LP.
"As a mineral owner, we want development capital to be available to the industry to facilitate drilling. Having said that, it is our overall view that there is too much capital in the space and for everyone who is principally oriented to growth through acquisitions, the market remains very difficult."
"It is difficult for sellers and buyers to agree on pricing. In addition, the flood of MLPs over the past two years has added both more capital and more competition at what I think are unrealistic prices."
Vanderhider adds that it appears MLPs are buying "as if their yield is the cost of capital rather than total return," and that it would be interesting to see what the 2006 and 2007 vintage MLPs' returns look like in 2010 and beyond.
Chuck Perrin, president and chief executive of Tulsa, Oklahoma-based Rockford Energy Partners LLC, feels there is too much capital floating around currently. "I think that the private-equity providers have a tremendous challenge in finding enough seasoned veteran management teams to deploy capital to.
"Perhaps some money is falling into hands of management teams that don't spend money as prudently and their buying is raising up prices."
In terms of his own company's business plan, Perrin says the current market makes accessing capital easier for Rockford. He concludes, however, that there is too much capital chasing too few deals.
S. Glynn Roberts, president of Houston-based Northstar GOM LLC, does not believe there is too much capital in his specific niche of the Gulf of Mexico.
"There is no flood of money into the Gulf of Mexico and that is evidenced by the fact that several quality asset packages ultimately did not change hands," he says.
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