EnCap Investments L.P. 1 IPAA Midyear Meeting 2008 Denver, Colorado July 21, 2008 Jason DeLorenzo,...

EnCap Investments L.P.1

IPAA Midyear Meeting 2008Denver, Colorado

July 21, 2008

Jason DeLorenzo, Managing Director


EnCap Investments L.P.

Provided over 150 companies with growth capital

Managed aggregate capital commitments of $6.5 billion

EnCap acts as a fiduciary for institutional investors and is responsible for investment decisions and management of the portfolio (no LP influence)

Consistent returns across multiple industry price cycles

Commencing fundraising efforts for EnCap Energy Infrastructure Fund, L.P., a midstream-focused fund

OverviewLeading provider of capital to the independent sector of the U.S. oil and gas industry since 1988


EnCap Investments L.P.Organization

Brent Bechtol

Mng. Dir.Jason DeLorenzo

Mng. Dir.Murphy Markham

Mng. Dir.Jason McMahon

Mng. Dir.Sean Smith

Mng. Dir.Wynne Snoots

Mng. Dir.Doug Swanson

Mng. Dir.Mark Burroughs

Vice Pres. Mitch Hovendick

Vice Pres.Brad Thielemann

Vice Pres.Mark Welsh

Vice Pres.Matt Crystal

Assoc.Ryan Devlin

Assoc.Kyle Kafka

Assoc. Scott Smetko

Assoc.

UPSTREAM FUND ENCAP INVESTMENT STAFF

ADMINISTRATIVE STAFF

Bobby Haier

CFOMelissa Standley

Tax ManagerDonna Wright

ControllerJohn Stricker

Sen. Acct.Audrey White

Sen. Acct.

David Miller

PartnerGary Petersen

PartnerMarty Phillips

PartnerBob Zorich

Partner

PRINCIPALS

INVESTOR RELATIONS

Hallie Kim

Mng. Dir.

INFRASTRUCTURE FUNDFLATROCK INVESTMENT STAFF

Billy Lemmons

PartnerDennis Jaggi

PartnerBill Waldrip

PartnerDennis McCanless

Mng. Dir.Bryan Danmier

Sen. Eng.Cat McMindes

EngineerEric Winscher

EngineerPam Jauer

Eng. Analyst Tommy Waldrip

AnalystJana Jackson

AnalystRaji Hoffman

Admin. Manager


EnCap Investments L.P.EnCap Energy Capital Fund VII

Fund Size: $2.5 billion

150+ limited partners

Consists of public pensions, insurance companies, university endowments, energy banks, foundations and wealthy family trusts

Investment Mandate

Private Equity

Transaction Size: $40MM to $200MM

Upstream Sector

Focused on North America (select international investments)

4



Honesty, Integrity and Forthrightness

Strong technical and operational backgrounds

Well-defined business plan / value creation strategy consistent with experience

Adaptability

Common understanding of risk management

Receptive to “partnership” relationship

Management Team Attributes

5


Alignment of interests:

Skin in the game

Incentive structure - they make money when we do

Involved in everything they are doing

Competitive advantages:

Geographic focus

Land position

Technical/operational niche

Business development/relationships

6

EnCap Investments L.P.EnCap Considerations


EnCap Investments L.P.Management Considerations

Economic considerations:

Terms

Capital available (size of provider)

Required management contribution (skin in the game)

Relationship considerations:

Cultural “fit”

Track record / reputation

Understanding of the industry (seen both up and down cycles)

Source of deal flow


Lower-risk drilling strategies

Resource plays / unconventional gas

Acquisition of acreage in known producing provinces with limited initial capital exposure. As drilling success warrants and as hard value is created the capital program is “ramped up” for acreage and drilling.

Joint venture partnerships with large independents and majors with “long” land positions

Value creation through the application of new technologies to conventional reservoirs with inconsistent production histories

Traditional acquire and exploit strategies

Infrastructure opportunities related to successful development drilling

Private Equity Company Strategies

8




Equal emphasis on capital preservation and value creation

Investment Strategy / Philosophy

Back seasoned management teams with compelling business plans and like-minded approach to risk management

Multi-basin strategy provides asset diversification

Capital generally advanced in tranches as attractive opportunities are presented and proof of concept is established

Engineerable reserve value substantially underpins invested capital

Sell assets when the market will pay a premium

9



Proven money-makers have demonstrable track record of creating value

Initial commitments typically larger

Receive somewhat more favorable terms

Greater upfront spending flexibility

Unproven teams

Typically betting on a strong technical / business development team coming out of a large independent or major

Early focus on strategy and risk management

Differentiation between Proven and Unproven Teams

10


EnCap Investments L.P.Private Equity Myths

Over involved in business

Exercise too much control / influence

Board representation is a function of size of investment

19 out of 20 times we say “yes”

Do not tell people who to . . . what to . . . when to . . .

Generally do not require anything more than banks

Impatient money

11


EnCap Investments L.P.Deal Structure / Management Incentive

EnCap generally contributes 95%+ of equity capital

Company is organized as a tax efficient flow-through vehicle, usually an LLC

Capital structure incorporates senior bank debt in addition to private equity

Multi-tiered “waterfall” back-in arrangement positions management to earn a blended 20%-25% of the company

Structure produces alignment of interest between EnCap and management

Both EnCap and management have board representation

12


Drilling success

Category shifting

Premium for size

Public/private market arbitrage

Being someone’s “strategic acquisition”

Running room

Captured sufficient land

Repeatability of proven concept

Value Creation – About more than buying low and selling high

13



What makes a quality asset? Hard to generalize, but…

14

Operated – control your destiny

High value drilling economics

Long life

Abundance of upside opportunities

Multiple pay horizons, infill drilling, field extensions…

High margin

Low transportation costs/differentials (infrastructure)

High btu gas/sweet crude

High net revenue interest (NRI)

Bottom line: is someone else going to want to buy it from you?



EnCap Investments L.P.EnCap Energy Infrastructure Fund, L.P.

EnCap has had success with midstream investments in the past

Flatrock principals average nearly 30 years of experience each, working as a team

Provide technical expertise and deal flow

Significant investment opportunity in midstream as a result of large E&P budgets, particularly in the resource plays

Will adhere to EnCap’s core philosophies

Value creation and capital preservation

Partner with seasoned management teams

Alignment of interest

Risk management

A midstream focused fund with a dedicated investment staff of midstream professionals


EnCap Investments L.P.Flatrock’s Extensive Industry Contacts – Over 125 Clients

Eagle Rock Energy, inc.

Aka Energy Group, LLC Southern Ute Indian Tribe

Jason DeLorenzo, Managing Director

Copyright EnCap Investments L.P 2007

Houston Office1100 Louisiana

Suite 3150Houston, TX 77002

(713) 659-6100

Dallas Office3811 Turtle Creek Blvd.

Suite 1080Dallas, TX 75219(214) 599-0800

EnCap Investments L.P. 1 IPAA Midyear Meeting 2008 Denver, Colorado July 21, 2008 Jason DeLorenzo,...

Documents

Transcript of EnCap Investments L.P. 1 IPAA Midyear Meeting 2008 Denver, Colorado July 21, 2008 Jason DeLorenzo,...