“Funding start-ups with private capital is not really money for nothing, but sometimes it can seem that way,” said Cameron O. Smith, senior managing director of The Rodman Energy Group while moderating a four-member panel for Oil and Gas Investor’s Energy Capital Forum in Houston.

The panel included David Krieger, managing director for the energy group for Warburg Pincus; John Moon, managing director for Riverstone Holdings; Greg Myers, managing director for Metalmark Capital; and Howard Newman, president and chief executive for Pine Brook Road Partners.

“We look for executives who have been there and done that,” Krieger said. “We like executives with the ability to perform one standard deviation to the right of the mean, with teams that are focused on a specific geography or play type. We tend to shy away from start-ups that are all over the map. We ask them to pick one focus area and then we’ll fund them.”

Myers added, “Today, it’s easier to fund a team rather than an individual. A group that has known each other for an extensive period of time will find it’s easier to get its business up and running with an established social chemistry. It all starts and ends with the management team.”

Strategy and reputation are important, Moon said. “It’s important to know yourself, dif­ferentiate yourself and communicate your strategy. Also, we don’t fund bad reputations. I don’t mean drilling a dry hole or executing with poor economics. We check to see if a chief executive or team has a reputation or a record for litigation, or that are said to be hard to work with as partners or customers.”

International politics also come into play, Newman said. “We don’t go into countries where kidnapping takes place, nor where there are coups. But while we are very comfortable with talented management teams, we are also comfortable with first-time chief executives and teams that are just now coming together.”

Newman also likes to see business strategies targeted to new areas, “places where no one has drilled before. We don’t fund teams who simply buy previously developed, producing properties. We like to see companies go find the oil. But the most important aspect is an introduction of the team to us by Cameron (Smith).”

Krieger said the current era of providing investment funds to E&P start-ups is different from the past because today almost all talented energy executives should easily be able to obtain venture capital, different from a decade ago. It also helps if the team “gets lucky once in a while.”

Myers said he is less risk-averse than he was in the past because “the low-risk opportunities just aren’t there anymore.”

Moon said, “We think more about value in the context of contrarian plays. We like plays that are off the beaten path, like late-in-life properties in the Gulf of Mexico.”

Newman noted that when prices were steady in the past, capital providers had all the power. Today, producers are finding that capital providers are competing against each other to partner with them. This may be true for quite some time, because “now oil and gas prices are high, and we all know they are going to stay up forever,” Newman quipped.

—Jeannie Stell

For more comments from these capital providers, see the video of the post-panel Q&A session at OilandGasInvestor.com.

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