Thinking creatively and being quick on your feet are key to a "scrambler's" success in funding oil and gas projects, but so is knowing when to listen to your gut, according to panelists at COSCO's Private Capital for Energy conference in Houston. The conference had a golfing theme. So what's an E&P scrambler? "Scramblers know how to get themselves out of trouble," said Frank Pottow, managing director, Greenhill Capital Partners LLC. "A scrambler is adaptive and creative, and we carry a lot of [golf] clubs in our bag," added Andrew Evans, vice president, ARC Financial Corp. "We've backed about 110 investment teams, and 50 emerged high on the returns list. Only five were unacceptable and the rest were on the back nine. We have 45 active investments right now." Jonathan Farber, managing director, Lime Rock Partners, said, "We look at different ways to get the deal done. That creative approach is the key. We've backed 30 companies and only lost money on two. Fifteen were highly successful and for 11, the jury's still out." Keeping the balance of power intact between management and the money source is also important, said Chuck Yates, managing director, Kayne Anderson Capital Advisors LP. "There's a difference in perspective between having a voice with the board versus owning the board. This has led us to have a 'relationship' culture instead of board seats with dictatorship. Even when we do have board seats we try to maintain that relationship." Although the panelists agreed that the ability to move quickly on a deal was important, it should never override a careful evaluation of new faces. "We have a list of 'tests' for new management teams," said Wil VanLoh, managing director, Quantum Energy Partners. "Are they honest? Have they done it before? Do we have portfolio companies that would cause competition? Is there good chemistry between us and are they realistic about their expectations? If the answers are positive, then we dig deeper." VanLoh said that some warning signs are when a company hasn't made any money in the last five years, it has mediocre references or when it fails to articulate its strategy. He likes niches, distinct edges to deals and complete teams with a clear leader. Quantum isn't interested in any "two- or three-headed monsters." "When someone wants to do something different, it's not a deal-killer, but we want to understand why," VanLoh said. After the checklists, all that's left at the end of the day is the gut check, quipped Pottow. "Serial groups are the ones that are easy to back. "And for the new faces, judging the technical merits of a project is easy-judging the partners is another call. When we've been disappointed is when, in the end, a team didn't understand the value of or really want a capital partner." Yates added, "When you get to the 'El Tiempo' stage over a margarita and a full plate of fajitas and you get kicked out of the restaurant at 10 p.m., you've got a deal. You're clicking with the team and the chemistry is working for everyone."

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