The past year saw no shortage of new energy companies, with high equity commitments helping to form new E&Ps and the promise of long-term benefits inspiring an explosion of MLP IPOs. Already, 2008 is looking to continue the previous year’s trend.

New York-based COSCO Capital Management LLC senior managing director Cameron O. Smith says, “Whenever product prices are low, private equity is far more likely to back start-ups with drillbit-oriented business plans than growth financings and acquisitions. Conversely, when prices are high, private equity is very likely going to be in a monetization mode, thus liberating management teams for re-upping again in start-up mode.


“For these reasons, start-ups in 2008 should be active, competitive and well funded.”


Marshall Lynn Bass, co-founder and principal of Houston-based mezzanine capital provider GasRock Capital LLC, says 2008 should bring a healthy level of start-ups. “This is because you have relatively high M&A activity combined with a lot of equity capital available. Whenever there is high M&A activity, that means a lot of people are leaving companies due to displacement or disinterest in working for the acquiring company.


“Many times, these people get a payday too. So they are prime candidates to start new companies, and there is a lot of private equity keenly interested in backing these teams.”


Plenty of equity was available for veteran energy executives, and 2007 proved to be a boom year for MLPs in the E&P and midstream markets. (For a round-up of 2007 start-ups, see Oil and Gas Investor This Week, February 4, 2008.)

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