There won't be much of a slowdown in equity-capital flow to the E&P sector in the quarters to come, according to Warburg Pincus LLC managing directors Jeffrey Harris and Peter Kagan. In fact, they expect the amount of private capital available for E&P ventures to continue to grow until oil prices fall to around $40 per barrel.

"Energy is a big industry that is so capital-intensive, it can absorb considerable investment," Kagan says.

New York-based Warburg Pincus recently funded newly formed, Dallas-based E&P start-up Broad Oak Energy Inc. with an equity commitment of up to $150 million to initially focus on tight-gas opportunities in South Texas and North Louisiana. Management includes executives from Pioneer Natural Resources and privately held, South Texas-focused Camden Resources.

Kagan says, "Everybody in private equity wants to have an energy presence. We're also hearing talk of more opportunities to do buyouts of upstream companies. Don't be surprised if it actually happens."

The firm has raised 12 private-equity funds in its history and invested $24 billion; during the past 10 years energy investments have represented about 10% of the total portfolio.

Besides the newly funded Broad Oak Energy, Warburg Pincus' current upstream energy portfolio includes holdings in U.S.-focused Antero Resources Corp. and Bill Barrett Corp.; North Sea-focused Fairfield Energy; West Africa-focused Kosmos Energy; and Canadian oil-sands-focused MEG Energy. It also currently has holdings in non-E&P companies including Aryan Coal, Enerchina and U.S.-based midstream company Targa Resources, which recently filed for an IPO.

Its interest in North American oil and gas investments isn't waning; instead, competitiveness for placing private-equity capital in energy companies in North America has pushed Warburg Pincus abroad in its search for good investments.

"Energy is a big, international business. We would be short-sighted not to take advantage of that," Harris says. Enerchina focuses on gas-fired power generation in China, and Aryan Coal washes coal for use in power generation in India.

The firm is not shy about investing in pure exploration, he adds. A solid management team is one of the strongest selling points. Kosmos Energy was founded as an exploration company with big-ticket well costs. But its founders are key former managers of Triton Energy, the Dallas-based exploration company that was responsible for huge discoveries offshore West Africa and was acquired by Hess Corp., Kagan notes.

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