In a recent cover story, Midstream Business explored the role of private equity within the midstream space and one thing became quickly and abundantly clear: It’s the management team that makes the deal.
From the time in 2011 when pipeline legend Rich Kinder and his Kinder Morgan Inc. staged its return to the public markets in one of the largest private equity-backed IPOs in history—issuing more than 110 million shares for a total raise of $3.3 billion—to the recently formed Navitas Midstream Partners with Copano’s former chief Bruce Northcutt at the helm, it’s the people in charge of the plan who provide the faith needed for private investors to part with their money and take the risk.
After that edition went to press, another “startup” in the midstream popped up with $600 million in private equity sponsorship. Warburg Pincus in New York is planning to invest the money in Zenith Energy, a company that intends to construct oil and natural gas terminals internationally.
Jeffrey R. Armstrong, most recently the corporate development chief at Kinder Morgan, where he grew the pipeline titan’s terminal business more than 10 times over with 122 terminals and increased its earnings from $50 million to more than $800 billion, is in charge at Zenith.
Now, do you suppose Warburg would hand over that kind of cash to a rookie?
Of course, the folks at Kinder Morgan—who popularized the MLP structure—are taking a what’s-old-is-now-new approach by consolidating the four midstream entities into a giant corporation. Kinder said no management changes are planned. However, there will certainly be no lack of MLP talent under a corporate umbrella that private equity investors may seek to tap.
Midstream opportunities
To be sure, siphoning off talent is nothing new in the energy business. Through the miracle of shale development, there are more opportunities to work in leadership than many in the business told me they thought they’d ever see. In the first years of the renaissance, corporate angst and hand-wringing was based on fears of running out of workers, from roughnecks to engineers. The late 1980s and early 1990s in the oilfield hadn’t been kind to oil and gas, and layoffs were followed by a general malaise from college talent.
But this new space in the work force is something different.
No one doubts there is a wealth of private equity searching for opportunities in the midstream. One lawyer described the situation as “frothy” with funds so full of cash they might be wasted on less-than-stellar projects. Warburg and others, however, seem to have found a sweet spot for their new, although certainly not new-to-the-field, talent.
In 2003, Warburg took a chance of sorts on Targa Resources Partners LP, backing the already-known qualities of Joe Bob Perkins, Rene Joyce and Roy Johnson, with a $400 million investment that netted Warburg $1.8 billion almost a decade later. Prior to the forming of Targa, the trio was best-known as the team behind Tejas Gas Corp., which had sold in 1997 for $1.45 billion to Shell Oil Co.
Can Warburg’s latest venture into revisiting experienced talent capture lightning in a bottle again?
Don’t be surprised if you see it attempted again before the end of the year. Remember all that frothy cash? It’s going to be spent somewhere in the midstream space, and there’s no shortage of players in flux who would know how to use it.
At 45, former Kinder Morgan President C. Park Shaper was young to retire in January 2013. The reason given at the time was that he wanted more time with his family. His youngest child was 11 years old, and as a member of Kinder’s board of directors, Shaper still has a foot in the door and profound expertise from having succeeded in several roles there. He would, no doubt, be an intriguing lead for a private equity venture looking to raise its own stakes in the midstream.
J. Michael Stice, 54, can take his time deciding what to do next, having sold Access Midstream Partners LP this year to Tulsa, Okla.-based Williams Cos. Inc. in an almost $6 billion transaction. Stice is already familiar with private equity, having spun off Access from Chesapeake Energy Corp. with the help of private equity in July 2012.
It’s often good to see a familiar face, and it could be said that investors would likely welcome these and others with open wallets.
Deon Daugherty can be reached at ddaugherty@hartenergy.com or 713-260-1065.
Recommended Reading
Matador Resources Buys EnCap E&P Ameredev II for $1.9B
2024-06-12 - Matador Resources is expanding its Delaware Basin footprint in West Texas and New Mexico with the acquisition of EnCap-backed operator Ameredev II.
Kinetik Closes Acquisition of Durango’s New Mexico Delaware G&P Assets
2024-06-25 - Kinetik Holdings closed a $765 million acquisition of Durango Permian LLC, deepening Kinetik’s footprint of gas gathering and processing assets in the Delaware Basin.
Oxy: Ecopetrol Declines to Buy Interests in Permian E&P CrownRock
2024-08-01 - Following discussions between Permian joint venture partners Occidental Petroleum and Ecopetrol, the Colombian oil company declined to acquire a 30% stake in CrownRock LP’s Midland Basin assets.
Exxon Explores Sale of Conventional Permian Basin Assets
2024-08-27 - Exxon Mobil, which closed a $60 billion takeover of Pioneer Natural Resources this year, is exploring selling legacy conventional assets in the Permian Basin.
CEO: Vital to Chase Less-developed Delaware Zones with $1.1B Deal
2024-07-29 - With the acquisition of Point Energy Partners, Vital Energy is growing in the Texas Delaware Basin—where Vital has already done several deals and has worked to optimize drilling and spacing designs.