Three private-equity providers alone have nearly $1.8 billion to place with acquire-and-exploit E&P, service, midstream and other companies. All three especially do deals with past managers of successful investment companies and are willing to make new relationships, they told A&D professionals at a recent Society of Petroleum Engineers business-development program in Houston. "Everybody wants to back a management team that knows how to make money because they've done it before," said Billy Quinn, a managing director of Natural Gas Partners (NGP), Irving, Texas. NGP, which was founded in 1988 and has raised six funds, currently has $1.6 billion under management-$600 million of this in its new NGP Fund VII. In its history, it has made 42 investments in private companies. Its investments from November 1988 through January 2003 have held assets on the Gulf Coast (4%), Gulf of Mexico (6%), Midcontinent (24%), Texas (33%), the Rockies (8%), Canada (19%) and elsewhere. The firm particularly likes shallow-gas drilling opportunities in Canada. "The question [there] is not if you're going to get gas but if you're going to get 20 million cubic feet or 50 million per day," Quinn said. In that same time frame, the sectors in which NGP's investments have been at work include E&P acquisition and exploitation (72%), gas gathering (8%), oil services (5%) and development drilling (11%), he added. The firm funded part of a $265-million acquisition last summer for Energy Transfer Co. (ECT), a midstream firm that was owned by Aquila Inc. The deal, plus a side transaction involving the acquisition of Dow Chemical's 50% interest in Oasis Pipeline, which gave ECT a full 100% stake, was completed in six weeks. Just the first few weeks of work were especially interesting: "I could talk for hours about what went on...and it wouldn't bore you," Quinn said. A $200-million credit facility from Fleet Boston was itself an achievement: "It may not seem impressive but [at that time] these were radioactive assets in [the investment community's] mind." NGP put up $115 million of equity, which would have come from the $370-million NGP Fund VI, but NGP did not want to commit more than 10% of the fund's money to one deal, so it raised an additional $70 million of commitments from private investors. Another recent investment was in Chariot Energy Inc., Calgary, and involved its C$8-million acquisition of E&P assets in December. The deal, in which NGP provided C$20 million for the purchase as well as for additional acquisitions, was done in 24 days. At one point, Quinn was on the phone with Chariot's president, Suzanne L. West, for four hours. "She's an all-star," Quinn said. Many of the firm's client companies have had difficulty with hedging their production in the past couple of years as the energy-trading market has tightened from the loss of several major players, such as Enron. "It is hard to make an acquisition and hedge production," Quinn said. Some 50% of Chariot Energy's additional production was hedged. "To get this for a company this size is difficult," he said. But the effort is worthwhile: "It locked in a sizeable profit from Day One." A capital-shopping tip? He suggests asking prospective capital providers for names of firms in which their investments did not work out-besides names of firms in which they were successful. "Contact those management teams to see how [the capital provider] behaved in tough times." Connecticut- based First Reserve Corp. has $2.5 billion under management, and $700 million committed for new investments with eight years remaining in the term of this current fund. "We have money and we've done lots of deals," said Hardy Murchison, a vice president of the firm, which was founded in 1980. "We make good partners and we're looking for good companies." Current investments include E&P-companies Greystone Petroleum, Alpha Natural Resources and service companies Pride International, Superior Energy Services and T-3 Energy Services. The firm also invests in the infrastructure and electric-power sectors. "Our money mostly comes from state pension funds," he said, and managers of pension-fund money are looking for good investments. "We have a whole range of access to additional capital." One First Reserve investment was in Highland Energy, an operator in the southern North Sea. The company amassed 535 billion cubic feet of gas equivalent of proved and probable reserves and was sold last year to Germany-based utility RWE. "And we made a lot of money," Murchison said. First Reserve's $61-million equity investment in Greystone Petroleum was made last year as part of Greystone's acquisition of Sligo Field (north Louisiana) assets from Devon Energy Corp. "So far, Greystone has doubled Sligo Field production," Murchison said. First Reserve has repeat customers: Three companies in which it is currently invested are managed by teams First Reserve has worked with before. Wynne Snoots, a managing director of EnCap Investments LLC, Houston, which was founded in 1988 and has made more than $1 billion of investments, said, "It's always easy to make money with people you've made money with before." EnCap is currently placing money from its $625-million EnCap Fund IV, and $485 million remains available. EnCap has invested in 3Tec Energy Corp., Houston, which is being purchased by Plains Exploration & Production Co.; Denbury Resources Inc., Dallas; PetroQuest Energy Inc., Lafayette, Louisiana; Plains All American Pipeline; and Plains Resources Inc. Private-company investments include Cordillera Energy Partners, Denver; NCX, a Metairie, Louisiana-based Gulf of Mexico producer; Michael Petroleum, which was sold to Calpine Corp. in 2001, and its former managers are now backed by EnCap funds at their new firm, Laredo Energy; Plantation Petroleum, which bought Maynard Oil last year; Breitburn Energy Co., Los Angeles; and Texoil Inc., which was purchased by Ocean Energy Inc. in 2001. A current EnCap investment is in a midstream company, Copano Energy, which has South Texas gas-gathering assets. In 2001, Copano made an acquisition from Shell Oil of a 700-million-cubic-foot-per-day processing plant with $30 million from EnCap and $30 million from Credit Suisse First Boston. The deal integrated Copano's assets with the Shell asset. "The only way to make money in the midstream business is unique integration opportunities [like this]," Snoots said. Copano may be brought to the public-equity market as Crosstex Energy, another South Texas midstream company, was brought public in December, he added, but it is more likely that the company will be sold. EnCap looks for management teams that have "enough skin in the game." It doesn't have to be all of the managers' net worth, Snoots added. "It needs to be enough to hurt." -Nissa Darbonne

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