Having $1 billion to invest in oil and gas may be easier than it sounds, especially now that the MLPs have entered the market, says Logan Magruder, president and chief operating officer of Denver-based Quantum Resources Management LLC.

"The world is raining MLPs right now and their cost of capital is very low, so that's one of the things we have to contend with right now," he said at the Private Capital for Energy Forum, sponsored by COSCO Capital Management and Oil and Gas Investor in June.

"We look at the acquisitions we lost to MLPs and they slaughtered us. The acquisitions we have been successful with have been the ones we had a totally different view on than everyone else, the ones where we went in and reengineered everything and did something totally different with the properties."

Quantum Resources was formed in 2006 by Don Wolf, Alex Cranberg, Magruder and partners at private-equity provider Quantum Energy Partners, including Toby Neugebauer and S. Wil VanLoh. "Our initial plan was to leverage current technology with old fields...We felt there was room in the acquisition space for a company like ours." The team sought $750 million, but commitments grew to $1.2 billion.

"We have 82 pensions and endowments in our equity pool. Part of the issue we had to overcome with our investors was we were basically asking them to take a leap of faith. That's where it really helped to have (former Westport Resources chief) Don Wolf on our team. He's someone people know will do what he says he's going to do." Cranberg is a founder of Aspect Energy and a partner of Wolf's. Logan is formerly of Berry Petroleum, Calpine Natural Gas and Barrett Resources.

"We had seven different legal firms working on this start-up at one point," he said. "The whole thing took a full year to get formed, just because it was so complex."

The new firm's first acquisition was small: a $4.7-million property in the Piceance Basin, won in The Oil & Gas Asset Clearinghouse auction online. "But it ended up being a blessing in disguise, because it forced us to get all of our systems up and running. It was really painful getting that little deal locked into our company. Our next deal was much larger, but it was a lot easier, because we already had all of our systems in place."

In the company's first nine months, it has captured some $520.2 million in six deals, gaining 46.2 million barrels of oil equivalent in proved reserves.

It has made bids totaling $5.9 billion with a 9% success rate, the majority of which have been on the Gulf Coast, where the company has made bids totaling $2.9 billion. In the same time period, five deals were lost to MLPs, while 13 were lost to other E&P companies.

In looking at the five negotiated transactions done by Quantum in its first nine months, the deals had an average reserve life of 15.3 years and were 97% proved developed producing. Quantum paid an average of $11.32 per proved barrel of oil equivalent and $63,008 per daily barrel of oil equivalent.

Investments in the company are based on a 12- to 14-year horizon, and this makes it easier to attract personnel because a lot of oil and gas employees are looking for stability, he added. To investors, the company pays out a 6% coupon, and could be viewed as a private MLP, Magruder said.

Deploying capital has been the challenge: "It's fun to say you raised $1 billion, but it's a heck of a responsibility to invest in this market."

Comments