Outfitter Energy Capital LLC may be a relatively new name on the scene, but in reality, its activity in the energy private-equity space began in 2008. Outfitter is the continuation of an established and successful middle-market private-equity team, led by managing partners George McCormick and Curt Schaefer. They have been partners for nearly a decade, only now they own the business directly. Previously, they were founders of TPH Partners, the private-equity business within Tudor, Pickering, Holt & Co. (TPH) in Houston.
Cycle-tested
The Outfitter leadership team spun out from TPH at the end of 2016. It was of the utmost importance to both Outfitter and TPH that this transition be accomplished as seamlessly as reasonably possible for the benefit of both its limited partners and its portfolio companies. As a result, Outfitter continues to manage TPH Partners LP and TPH Partners II LP.
From a standing start in 2008, Outfitter’s principals have successfully raised and deployed approximately $400 million in 12 platform companies. Based on capital commitments to these companies, Outfitter’s sec-tor allocation has been about 80% upstream, 10% midstream and 10% oilfield services.
“Our goal from the beginning was to focus on less competitive, off-market transactions to find access to high-quality resources at attractive entry prices,” McCormick said. “We believe that this approach is a material mitigant to some of the risks inherent to investments in the oil and gas business.”
Another equally important tenet of Outfitter’s approach is the desire to partner with high-quality entrepreneurs that are experts in their own space, whether that space is defined in geo-graphic, geologic or relationship terms.
“We look to partner with teams that know their backyard really well. Those are the folks who will have the knowledge and relationships that will allow them to capture and exploit the types of assets that George is referring to,” Schaefer said.
“And that partnership aspect really is the key for us. A successful relationship with a management team is forged through being true partners in the creation, growth and ultimate sale of their business. We work very hard to be much more than just a checkbook to our partners, and I think our management teams would tell you we've generally succeeded,” McCormick said.
Outfitter is in the early stages of build-ing this new, standalone business, so its success is very personal and important to the team, according to Schaefer. “Our team has worked together for almost a decade, so we know each other very well. Our resolve, judgment and discipline have certainly been tested by the worst commodity cycle since the ‘80s, but that experience has only reconfirmed our investment tenets—as well as provided some lessons learned,” Schaefer said.
Middle-market specialists
Outfitter Energy Capital seeks majority equity positions between $25 million and $100 million of initial equity capital need in the upstream and mid-stream spaces. The partners believe this sweet spot allows for less competition for the initial resource acquisition and also provides the potential to benefit from ultimately selling into a larger and more liquid market after the assets are more fully developed. However, these companies often need more capital to achieve their goals as success unfolds.
“By starting with a more modest amount of equity capital than some of our larger competitors, we are able to take advantage, for management and our investors, of adding additional capital later at better terms. I think this is a benefit of our approach that management teams can sometimes underappreciate,” Schaefer said.
“We need to leverage local knowledge and relationships to capture the resource wherever we invest,” McCormick pointed out. “Our management teams know the area; they’ve worked it before. They—and we—may have access to deals not as widely known or otherwise unavailable, something that may be off the market but is quite intriguing nevertheless.”
To that end—and to date—Out-fitter’s portfolio companies have not purchased a single asset in a bank-run auction process. “We love to sell in a very competitive auction, but buying in one can be a recipe for over-paying, and we are pretty allergic to that outcome,” McCormick said.
“Our E&P companies typically start with a targeted, core acreage position to minimize upfront risk dollars on land until our own or neighboring drilling activity confirms the prospectivity of adjoining areas. We don’t believe in making a large land grab just for size’s sake and then hoping enough of it works out. That’s not our style,” Schaefer said. “We all learn and improve as we go. We have to remember, notwithstanding the often-used ‘manufacturing process’ argument, rock quality in any play can change fairly dramatically over a given area. Respecting these nuances can make a big difference in value creation.”
The end goal is to prudently grow volumetrically, meaning more reserves and more production, while maintaining a conservative and solid balance sheet and then, ultimately, selling the company into a larger and more competitive market. Importantly, in the current oil and gas price environment, the reservoirs involved must allow the asset to deliver at the low end of the cost curve. The acreage should be sufficiently undeveloped in order for the portfolio company to achieve target returns through exploitation drilling, which requires the right team with the right expertise to execute on the opportunity.
“We think of our job as helping our company partners access the necessary tools, and sometimes the path, for their own success. In this sense, we really are a guide of sorts. Hence, the genesis of the Outfitter name,” McCormick said.
“We may not be providing them with horses, supplies and equipment, but we do provide essential growth capital, seasoned advice, and access to the many contacts and relationships we’ve developed through the years. We are in this to facilitate a successful business outcome for each and every one of our partners. Other than the sheer fun and excitement of this business, isn't that what we are all looking for in the end?”