Capital Formation

HERES THE MONEY
CAPITAL FORMATION 2014
A SU PPL EM E NT TO
J UNE 2014
A SU PPLE ME NT TO
1616 S. Voss, Suite 1000

Houston, Texas 77057-2627
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Editor-in-Chief
LESLIE HAINES
lhaines@hartenergy.com
HERES THE MONEY
CAPITAL FORMATION 2014
Group Managing Editor
SUSAN KLANN
sklann@hartenergy.com INTRODUCTION .........................................................3
Contributing Editors
GARY CLOUSER CAPITAL PROVIDER NEWS ................................5
GREGORY DL MORRIS
ERIN PEDIGO
TARYN PEINE PATHWAYS TO MONEY.......................................11
CHRIS SHEEHAN, CFA
Corporate Art Director GOING IT ALONE...........................................................17

ALEXA SANDERS
Graphic Designer CONFIDENCE BUILDS

FELICIA HAMMONS
IN CAPITAL MARKETS............................................23
Production Director
JO POOL
jpool@hartenergy.com FIXED INCOME FAVOR.........................................31
For additional copies of this publication,
contact customer service at 713-260-6442. PRIVATE EQUITY DIVERSIFIES .....................35
custserv@hartenergy.com
Vice President and Group Publisher BULLISH ON BARRELS .....................................43

SHELLEY LAMB
slamb@hartenergy.com
A PREFERRED OPTION FOR MLPS .........47
Director, Business Development
MORGAN MASCIO
mmascio@hartenergy.com ROTH RAMPS UP...................................................51
Director, Business Development
ERIC ROTH IS AN MLP RIGHT FOR YOU? ........................55
eroth@hartenergy.com
Director, Business Development FINDING CAPITAL: A DIRECTORY...............62

NELLA VELDRAN
nveldran@hartenergy.com
Editorial Director
PEGGY WILLIAMS
President and COO

KEVIN F. HIGGINS
Chief Executive Officer

RICHARD A. EICHLER
Copyright 2014, Oil and Gas Investor

Hart Energy Publishing LP, Houston, Texas.
June 2014 | Heres The Money: Capital Formation 2014 | oilandgasinvestor.com 1

INTRODUCTION
FIELDING GREAT TEAMS
T
o match a companys long-term strategy (un- ever, this may be about to change. Barclays indi-
derpinned by its immediate cash needs) with cates it expects an upward drift in interest rates
the various forms of capital is a never-ending later this year as the Fed completes its tapering of
game in the E&P business. Luckily, it is very well- the stimulus program. Bond issuers need to act
played, and capital is plentiful. Banks, institutions, pri- fast, it would seem.
vate-equity firms and individuals are eager to put their For micro-caps and small-cap E&Ps, issuing pre-
money to work in the oil and gas business, one of the ferred stock could be the better way to play it. As
bright spots among industry sectors. engineering continues to remove the risks of oil and
After all, North American resource plays can gen- gas development, and new efficiencies are used by
erate some of the highest returns in the oil and gas companies to reduce costs, it has become much
world today, if they are managed smartly. The call on easier than it was a decade ago to attract capital.
capital is great, howeverand as youll see from the Private-equity players have taken the field by
sources quoted here, companies can access that cap- storm, fundingand coachingE&P firms in all
ital in the public markets easily today, perhaps more basins and plays. Some spectacular IPO exits have
easily than through strategic M&A transactions. occurred recently that prove the viability of a pri-
The interest rate environment is still very attrac- vate-equity approach.
tive, so fixed income is one popular path to capi- Consider this special report as a playbook that
tal; debt is the logical choice for companies of all guides you further into the capital provider
sizes. Both investment-grade and noninvestment- leagues so you can evaluate the teams, the coaches
grade issuers have done well. Even ExxonMobil and the terms that are right for you. We hope you
placed a $5.5 billion issue, marking its return to see a way to win on a level playing field.
the fixed income market after many years. How- Leslie Haines, Editor-in-chief
For more articles and news on financing topics, see OilandGasInvestor.com.

Note these in particular:
The Big Shuffle, on investment bankers views of capital markets. August 2013.
The New Faces of Finance, on profiles of Twenty Under 40 in Finance. January 2104.
Parsing the JOBS Act, on new ways for middle market companies to raise capital. January 2014.
The Fashion Window Opens for IPOs, on the premium for public equity vs. private asset sales.
One-on-One supplement published within the April 2014 issue.
CAPITAL led financings for companies
including Dynegy. Blackstone is
Milne Joins Wells Fargo
Energy Group
PROVIDER an investment and advisory firm

based in New York.
Kendal Milne joined Wells Fargo
Energy Group in November. The
NEWS Maguire Joins Carlyle

group is part of Wells Fargo Bank.
Milne will focus on the groups
In Case You Missed It International Energy Partners expansion into the U.K. He has
Robert Maguire was appointed about 40 years experience in
I
n the energy finance world, managing director for Carlyle banking, 15 of which were in the
there are many moving parts International Energy Partners in energy sector in Aberdeen. Previ-
and they move fast, especially late February. He has 30 years ously he worked for DNB Bank,
today, when interest in investing in experience in the energy indus- and led the oil and natural gas
oil and gas assets is at an all-time try, most recently joining Carlyle group for banking at Barclays Plc.
high. In case you missed it, here are from Perella Weinberg Partners.
some key financial news items com- The international energy team J.P. Morgan Names Lister
piled from June 2013, the publica- focuses on upstream E&P, mid- Energy Group Head
tion date of the last edition of this stream, oilfield services, refining In September, J.P. Morgan
Capital Formation Report, through and marketing, and is part of the appointed Mike Lister head of its
May 2014. companys $28 billion global corporate client energy banking
energy platform. group. Based in Dallas, Lister
PEOPLE MOVES manages a group of bankers
Wells Fargo Names focused on E&P, midstream and
Balombin Managing Director service companies. He also over-
Tim Balombin became managing sees relationships between J.P.
director for the M&A practice Morgans commercial banking
within Wells Fargo Securities capi- sector and energy companies. Lis-
tal markets and investment-banking ter has 23 years experience in
group, focusing on the upstream banking, beginning with J.P. Mor-
sector. He joined the company gans energy practice in Houston.
from RBC Capital Markets, where
he was part of the M&A team for Montano Joins Roth Capital
energy, power and utilities. Partners
Alexander G. Montano has joined
Blackstone Bolsters Roth Capital Partners, Newport
Energy Practice Beach, Calif., as its new managing
In late February, Keith Lord and director for investment banking
Dayan Abeyaratne joined Black- in energy. Previously, he was man-
stone Advisory Partners power aging director for the energy
and renewables advisory prac- and oil and natural gas practice
tice. Lords strategic and advi- at C.K. Cooper & Co. for
sory experience from UBS more than 15 years. Energy bank-
includes structuring and financing is the fifth vertical being
ing the Cove Point LNG facility added to Roths corporate invest-
for Dominion Resources. Abe- ment-banking team, which also
yaratne had been head of gener- includes the health care and
ation advisory for UBS global biotech sectors for sales, trading
power and utilities group, and and research.

Connors/Goltermann Join Claire Harvey are among the Energy And Infrastructure
Northland Capital group leading the office. McMa- Capital Is Formed
Adam B. Connors and Carl hon is a founding partner and the In April 2014, the new Energy
Goltermann have joined North- firms managing director. Houston and Infrastructure Capital LLC,
land Capital Markets as managing is a senior advisor, and Harvey is which provides direct lending to
directors, energy investment bank- a vice president on the energy energy and infrastructure compa-
ing, in the companys Newport investment team. McMahon has nies worldwide, was formed. The
Beach, Calif., office. Northland is about 40 years experience in subsidiary of Harbinger Group
based in Minneapolis. Previously energy investing and advising and Inc., a holding company, is led
they were managing directors has represented Pine Brook as the by Jerry Polacek as CEO and
with C.K. Cooper & Co., which director of Forge Energy LLC and COO and by Matthew Ordway,
was closed in June 2013. other companies. Houston has CFO and a co-COO.
more than 30 years experience in Polacek was formerly the man-
PROVIDER NEWS the energy industry and joined aging director at GE Capital
Pine Brook Opens Pine Brook from BG Group Plc. Energy Financial Services. Ordway
Houston Office Harvey was most recently with was formerly CFO at Ridgeline
New York investment and private- TPH Partners, an affiliate of Tudor, Energy. Polacek will oversee invest-
equity firm Pine Brook opened Pickering, Holt & Co., where she ments and strategy. The Stamford,
a Houston office in April to worked in energy sector invest- Conn.-based company will pro-
support its current and future in- ments. Pine Brooks Houston vide debt lending for oil and gas,
vestments in the region. Michael office is located at 1301 McKinney along with power, renewables and
McMahon, Martin Houston and St., Suite 3550. other energy sectors.
6 Oil and Gas Investor | Heres The Money: Capital Formation 2014 | June 2014
KKR Closes Energy Fund target investments in new financial a private energy company, Taylor
With $2 Billion and energy companies. Sidely was a partner in an energy invest-
In March 2014, KKR closed Austin LLP was Pine Brooks ment-banking boutique, and the
its KKR Energy Income and counsel, and Credit Suisse was the two have closed more than 50
Growth Fund I with $2 billion for fundraising placement agent. energy-related investments.
investment in North American
unconventional oil and natural Ridgewood Energy Closes Tudor, Pickering
gas resources. The fund will $1.1B Deepwater Fund Opens Calgary Unit
generate income, increase capital In January, Ridgewood Energy Tudor, Pickering, Holt & Co., an
and support joint-venture drilling Corp., Montvale, N.J., closed pri- integrated investment and mer-
investments, mineral royalty vate-equity fund Ridgewood chant bank with offices in Hous-
acquisitions and producing assets. Energy Oil and Gas Fund II LP ton, New York, London and
Marc Lipschultz is the global head with $1.1 billion in commit- Denver, has picked Calgary as its
of energy and infrastructure for ments. Formed to invest in oil entry point into Canada. As the
New York-based KKR. projects in the U.S. deepwater energy hub of Canada, the city
Gulf of Mexico, the fund has was selected as a means to serve
Intervale Capital Raises already invested in two oil wells, Canadian clients as well as inter-
Oilfield Services Fund one of which, the Dantzler Proj-
Private-equity firm Intervale Cap- ect, was drilled in partnership
ital raised $495 million in capital with Noble Energy Inc. Eaton
commitments through its Inter- Partners LLC, based in Roway-
vale Capital Fund III LP, which it ton, Conn., was placement agent
closed in February. Charles Cher- for the fund. Vinson & Elkins
ington and Eric Horsley led the LLP was fund counsel.
fund, and Credit Suisse Securities
(USA) LLC was placement agent. Angelo, Gordon & Co.
The fund will serve privately Opens Houston Office
negotiated control investments at New-York based Angelo, Gordon
middle-market oilfield services & Co. LP hired Todd Dittmann
companies and contribute to and three others to head up its
startup oilfield services compa- energy industry investment sector
nies. Choate Hall & Stewart LLP in a new Houston office, the
was Intervales legal counsel. company said in early December
2013. Dittmann has more than
Pine Brook Closes 20 years experience in invest-
$2.43 Billion Fund ment and finance in the energy
In February 2014, New York pri- industry, including closing about
vate-equity firm Pine Brook closed 85 investments as a principal
its second fund, Pine Brook Capi- investor or lender. He formed a
tal Partners II LP, with total capital team focused on energy sector
commitments of $2.43 billion. credit opportunities in the spring
The fund has made five invest- of 2013.
ments totaling $300 million. New Damon Putman and David
investors include domestic public Taylor joined Dittmanns team as
pensions and endowments, as well managing directors, while Paul
as investors from China, Europe Gottheim joined as an associate.
and Southeast Asia. The fund will Putman was previously CFO of

national clients focused on the Denvers Rock Oil, Liberty II tional amounts from its manage-
Canadian market. The global Capitalized By Riverstone ment team. Riverstones commit-
firm has selected veteran Hilary Rock Oil Holdings LLC, a ment came from its Riverstone
Foulkes to lead the team as newly formed Denver and Global Energy and Power Fund V
chair. She has operating and Houston-based E&P, received and from Riverstone Energy Ltd.
investment-banking experience, an equity commitment of up to CEO Chris Wright, president
having served previously as $250 million from funds man- Mark Pearson, CFO Paul Vitek
COO for Penn West Exploration aged by energy private-equity and others lead Liberty II.
and as a managing director for firm Riverstone Holdings LLC
Scotia Waterous. and additional amounts from Five Point Capital Funds
the companys management Redwood Midstream
Dallas Bank Forms New team. The Riverstone commit- In February, private-equity firm
Energy Finance Group ment, announced in March, Five Point Capital Partners
In December 2013, Dallas comprises up to $167 million LLC funded Redwood Mid-
Community Trust Bank estab- from Riverstone Global Energy stream Partners LLC with $75
lished an energy finance group and Power Fund V and up to million. Houston-based Red-
focused on banking for domestic $83 million from Riverstone En- wood focuses on development,
oil and gas companies. It is led ergy Ltd. The Rock Oil manage- expansion and optimization of
by managing director Christina ment team previously built a midstream energy infrastructure
Kitchens. Patrick Leznicki and substantial acreage position for small to mid-sized producers
Jerry Horton are vice presidents along with associated produc- in emerging shale-producing
of energy lending, while Carlton tion in the Eagle Ford Shale that regions. Redwood is led by
Cornelius is portfolio manager. it successfully sold in separate Marty Patterson, president, a
transactions to Sabine Oil & midstream energy veteran with
PRIVATE-EQUITY Gas and Sanchez Energy Corp. more than 30 years of industry
DEPLOYED in 2012 and 2013, respectively. experience. Prior to founding
Post Oak Energy Capital The team is led by chairman Redwood, he was a member of
Leads Equity Commitment and CEO Kyle R. Miller, who the founding management team
Midland, Texas-based Mike Black has led a number of E&Ps at American Midstream Part-
and Brandon Black of Crown Oil including Chicago Energy Asso- ners. Founded in 2011, Five
Partners V LP have formed and ciates. Rock Oil will likely con- Point Capital focuses on mid-
are leading a $100 million centrate its efforts in the Eagle stream energy infrastructure and
equity commitment provided by Ford Shale, the Utica Shale and energy sector investments across
Post Oak Energy Capital LP, the Permian Basin. North America.
Houston, the company said in Rivington Holdings LLC and
late April. its affiliate, Rivington Securities ArcLights Logos
The equity commitment cur- LLC, were exclusive financial Backing Upsized
rently supports secondary-recov- advisors to Rock Oil. DLA Piper Logos Resources LLC, Farming-
ery operations and drilling and LLP and Latham & Watkins LLP ton, N.M., received an upsized
development operations in the provided legal counsel to Rock equity capital commitment of
Clearfork, Wolfcamp and Bone Oil and Riverstone, respectively. $100 million in January 2014
Spring formations in the Permian In November, Liberty Resources from ArcLight Capital Partners
Basin. Post Oak and Crown Oil II LLC, also a new Denver-based LLC, Boston. Logos was formed
have collaborated since 2008, E&P, received $300 million in in January 2012 in partnership
and this equity commitment is equity from funds managed by with ArcLight and Consolidated
Post Oaks third investment with Riverstone Holdings, $50 million Asset Management Services.
Crown Oil. from Oakmont Corp., and addi- Logos will develop its existing
acreage in the core of the Gallup founder, president and CEO. It Lime Rock Partners, Wells
oil resource play in the San Juan is based in Billings, Montana. Fargo Energy Capital, and Riv-
Basin using both horizontal and Durrett is joined by certain ington Capital Partners LLC
vertical drilling technology. It other executives from the man- (a subsidiary of Rivington
will also expand its footprint agement teams at Augustus I Holdings, LLC).
and pursue acreage acquisitions. and United States Exploration
Jay Paul McWilliams, David Inc., including Kenneth J. Meis- EnCap Commitment Propels
Gonzales and Austin Akers are ter, vice president-engineering; Silverback Exploration
Logos senior management team Bob Fisher, vice president-geol- In November EnCap Invest-
members. Gonzales, who is vice ogy; Duane Zimmerman, vice ments LP, Houston, provided
president of operations, and president-operations; Lou Ann Silverback Exploration LLC, San
Akers, who is vice president of Carlson, vice president-admin- Antonio, with a $350 million
land, joined the company from istration; and Jeff Appelt, con- equity commitment. Silverback
Linn Energy LLC. troller. The companys two-tier is led by CEO George M. Young
strategy involves leasing and Jr. and a management team in-
Lime Rock, Wells Fargo, Riv- drilling as well as acquisitions cluding COO Stephen Lipari
ington Fund Montana E&P of producing properties in the and CFO Chris Williford. The
The former management team Rocky Mountain region. Fort Worth office of Kelly Hart
of Augustus Energy Partners Simultaneous with its forma- & Hallman LLP was Silver-
LLC formed Augustus Energy tion, Augustus II closed a new backs legal counsel. Thompson
Partners II LLC in December, $96.7 million institutional pri- & Knight LLP was EnCaps
led by Steven D. Durrett, the vate-equity commitment with legal counsel.

CAPITAL CHOICES
PATHWAYS TO MONEY
Proven management teams with assets and
solid business plans attract capital.
By Gary Clouser
C
apital providerswhether making bank ability to create value, they agreed. There are pros
loans or private-equity investmentsare and cons to bank loans and private equity, and
looking for proven management teams E&Ps need to understand them and know what
with demonstrated track records, technical and they want to accomplish in the short and long
business management expertise, high-quality term, the capital providers said.
assets and a solid business plan. Using bank debt and/or other conventional
Oil and Gas Investor asked representatives of financing, if available, may take longer to grow
capital providers representing three different forms an E&P company, but the company can maintain
of capital banks, private equity, and a hybrid or control of the business. With private equity, the
single-source financing offering senior loans, mez- deal is usually much larger and management is
zanine debt, and equity investmentsto provide part of an overall team, but the company gives
tips for E&Ps seeking capital. Participating were: up a majority share of the profits to the private-
W. Bryan Chapman, executive vice president and equity investor.
energy lending manager, IberiaBank; Carl Tricoli, Private-equity deals typically have the opportunity
co-founder, managing partner and co-president, to generate significant profits within a few years,
Denham Capital; Denham Capital; and Brian whereas debt-financed deals are typically smaller
Thomas, managing director within Prudential and take longer to generate significant profits.
Capital Groups Energy Finance Group. E&P teams need to decide if they want to own
Regardless of the form of capital sought, a suc- 100% of a smaller pie, or if they would prefer a
cessful management team must demonstrate an smaller percentage of a much larger pie. For some,
OIL AND GAS INVESTMENT RISK SPECTRUM
The reserve characteristics, taken together with the size and maturity of the issuer,
drive the form of capital required for growth
Investment Risk Spectrum
Production Risk Exploration Risk Commercialization

50%+
40% PREFERRED AND COMMON EQUITY

30%
RiskTarget Internal Rate of Return (%)
25%
20% MEZZANINE/JUNIOR DEBT AND DEVELOPMENTAL DRILLING LOANS
15%
10% STRETCH SENIOR/SECOND LIEN BANK AND INSTITUTIONAL LOANS
5%
CONFORMING SENIOR BANK FINANCING
0%
Characteristics
Proved Reserves
Reserve
Producing Developed Not Producing Undeveloped Probable Possible
Engineering Risk: Drilling, Completion - Operating Risks Exploration Risk & Operating Risk
Source: Prudential Energy Finance Group

CAPITAL CHOICES
tremendously. However, the energy

If your business plan includes a lot of acquiring leases
lending policies for banks have
with no production in a new play or involves significant
exploration risk, then you need that to be funded with
been consistent for many years, said
equity until you establish enough production and cash
IberiaBanks Chapman.
flow to support bank debt. The majority of the value support-
W. Bryan Chapman, executive vice president ing secured first-lien borrowing base
and energy lending manager, IberiaBank
credit facilities is proved developed
producing properties (PDPs). Lines of
credit can also be supported by some
building a legacy company takes an entire career, proved developed nonproducing reserves (PDNPs)
and even beyond. If they want to build a legacy and proved undeveloped reserves (PUDs) if they are
company, they need funding sources other than pri- still economic at bank price decks after applying a
vate equity, because typically, private-equity-spon- discount or risk factor. However, PUD values typi-
sored companies are intended to grow more quickly cally do not exceed 10% to 15% of the total value.
and be sold or monetized through mergers or pub- While management teams may acquire valuable
lic markets, according to the capital providers. acreage in a de-risked area indicating significant
untapped potential, the bank regulators state that
Bankers tips banks should not rely on unproved reserves as the
The market for reserve-based loans to E&P com- source of repayment for a loan, Chapman said.
panies has been increasing over the past several Sometimes banks are accused of being too con-
years because horizontal drilling and hydraulic servative, but Chapman makes no apologies for
fracturing have enabled companies to find and the caution. We need to be good stewards of our
produce increasing volumes of oil and natural clients deposits and only take appropriate risks,
gasbut the need for capital has increased with the full expectation that the loan will be paid,
INVESTMENT CRITERIA and there is the minimal chance of a loss. Banks
that were not prudent lenders in the 2008-2009
financial crisis were shut down, taken over by the
Proven FDIC and sold to other banks.
Management If your business plan includes a lot of acquiring
Team
leases with no production in a new play or involves
significant exploration risk, then you need that to
be funded with equity until you establish enough
production and cash flow to support bank debt.
Solid The most frequent and biggest mistake
Demonstrated
Development E&Ps make is to get over-leveraged or take
Who Do Track Record
Plan
too much exploration risk, followed by a
We Look drop in commodity prices that results in
to Partner impaired liquidity to replace or grow reserves.
With? Before accessing the bank loan market, a
company needs to have a good management
team with all the disciplinestechnical, oper-
ational, land management and financialan
Strong
High Quality Technical independent third-party reserve report, financial
Assets Expertise and projections and enough equity to support the risk
Experience associated with its business plan, he said.
Success in one play, location or type of produc-
Source: Prudential Energy Finance Group tion does not necessarily equate to another,
CAPITAL CHOICES
Sr. Secured/ Cash Flow, Covenant Based Lending

Unsecured Yield Range: 3.5% - 7.0%
Fixed Rate
Debt $10- $200 million Investment
Coupon: 8% - 12%
Second Lien
Proved Fixed/ No royalty or equity linked component
Reserves Floating Rate
Debt $10- $100 million Investment
Targeted returns typically in the mid-to-high teens Secured / Unsecured

Mezzanine Contractual coupon with varying types of yield $10- $50 million
enhancing features (e.g., warrants, ORRI, NPI) Investment
Probable Non-Control Position

& Possible
Equity Long Hold Period
Reserves
$10- $50 million Investment Source: Prudential Energy Finance Group
Chapman cautions. For example, a team that had billion in invested and committed funds in the oil
great success in developing conventional plays is and gas, power and metals and minerals industries.
not necessarily going to be successful in develop- It seeks E&P teams that share its approach cen-
ing a shale play, just as a team with success tered on partnership, risk mitigation and operational
onshore is not necessarily qualified for offshore competence over a variety of market environments.
exploration. The management teams track record We are looking for the best investments, or
should match as closely as possible the purpose anticipated best risk-and-reward profile, Tricoli
for which the borrowed money is sought, Chap- said. Usually our funded companies have what we
man said. call dislocated value, meaning that the value we
IberiaBanks energy lending group was started perceive is not yet fully recognized in the market,
in October 2009. Loan commitments increased to and often the company possesses assets and
more than $1 billion earlier this year with about potential that are underpriced.
80% made to private, private-equity-backed and Denham believes it is a value-added partner and
small- to mid-cap upstream companies. The seeks to apply its operational and commercial
remainder has gone to private and private-equity- expertise and risk management strategies to create
backed midstream companies. value in investment opportunities.
The most important criteria for securing
Private-equity tips funding sounds trite, but it is by far the most
Aligning interests and building partnerships is important, Tricoli said: We look for the best peo-
what makes investments successful, said Denham ple. Denham seeks to team with a CEO that has
Capitals Tricoli. technical and management capabilities. The CEO
Collaboration and teamwork are integral to suc-
cess, so we look for like-minded management
teams who value the power of partnership and There is a big difference
trust. Our portfolio companies are experienced and between knowing how to
patient, and they share our vision of growth and produce hydrocarbons and
knowing how to make money.
value creation. Harnessing their ambition with our
financial and technical background, we work as Carl Tricoli, co-founder, managing
peers, creating a win-win for everyone, he said. partner and co-president,
Denham Capital Management is an energy and Denham Capital
resources private-equity firm with more than $7.9

CAPITAL CHOICES
As with all private-equity firms, an exit strategy

The reserve characteristics, taken
and timetable are part of the plan. That plan
together with the size and maturity
of the issuer, drive the form of involves Denham providing capital to a company
capital required for growth. to enable it to reach an identified goal or bench-
mark. In exchange for the capital, Denham receives
Brian Thomas, managing director, a partial or full ownership stake in the company.
Prudential Capital Groups
Typically, Denham expects to exit, or sell, its stake
Energy Finance Group
in a portfolio company in two to six years.
Denham Capital is flexible in creatively struc-
needs to know how to allocate capital. There is a turing the best transaction to fit all parties inter-
big difference between knowing how to produce ests. Our investments are structured to create
hydrocarbons and knowing how to make money, alignment with the interests of management teams,
Tricoli said. ensuring a shared definition of success and a
Once comfortable with the people, the second shared vision of how to achieve goals, Tricoli said.
consideration is that the applicant company We strive to partner with managers who truly
demonstrate it has the necessary technical seek to build businesses, not just to own assets,
resources and knowledgeable personnel, Tricoli and who understand the power of collaboration.
said. Of course, there is the number crunching, Because Denham Capital has a flexible invest-
due diligence and relative merit of the projects. ment horizon and a patient long-term orientation,
Usually, if the first two are presentgood people we are not looking for market timers or quick
with technical resourcesapplicants come to the results. We work with management teams to
table with projects with merit, or a feasible plan. develop an exit strategy that makes sense for all
FACTORS IMPACTING BORROWING BASE LOAN AMOUNT
Borrowing Base Decrease Borrowing Base Increase

Lower prices / price deck Higher prices / price deck
Unwinding existing hedges with strike prices above Additional hedges at prices above price deck
price deck
Reserve acquisition (with material
Reserve divesture (with material PDP component) PDP component)
Producing existing PDP reserves and not replacing Converting PUD or unproven reserves into
them through drilling or acquisitions PDP category through drilling of development or
exploratory wells
Increased operating costs, G&A expenses,
production taxes, drilling / completion CAPEX Reducing operating ccompletion osts, G&A
expenses, production taxes, drilling / CAPEX
Converting PDP reserves to PDNP category because
of weather and/or (hurricane, freezing temperatures) Converting PDNP reserves to PDP category,
mechanical/operational problems (requiring well recompletion of additional behind pipe zones
maintenance or repair of pipeline/processing facilities)
Positive reserve revisions (performance was
Negative reserve revisions (performance was less than better than expected resulting in more reserves
expected resulting in fewer reserves being recovered being recovered)
n Risk associated with the volatility of commodity prices/market values for oil and gas properties is mitigated by the flexibility
in a reserved-based loan with standard borrowing base provisions.
n Borrowers can manage risk through commodity hedging, maintaining adequate liquidity, taking prudent exploration risks,
not over-leveraging the balance sheet and partnering with a strong bank with experienced energy bankers.
Source: IberiaBank
CAPITAL CHOICES
parties in view of expectations set at the onset of their needs and plans and then match the best form
the partnership, he said. of capital to support their objectives, Thomas said.
The due diligence for senior debt, which offers
Single-source financing the E&P the lowest cost of capital, is often more
The reserve characteristics, taken together with the focused on the quality of existing production and
size and maturity of the issuer, drive the form of cap- cash flow; whereas mezzanine and private-equity
ital required for growth, said Prudentials Thomas. investments depend on managements ability to
Prudentials Energy Finance Group is represen- convert potential value into real value through
tative of a hybrid capital provider, offering senior cost-efficient developmental drilling and the con-
debt, mezzanine and equity capital. We can pro- version of undeveloped resources and acreage.
vide both debt and equity capital in the same We offer a variety of financing options along with
transaction, said Thomas. the ability to fund entire transactions and serve as a
The group had a $13 billion portfolio at the single-source lender, delivering a quicker closing,
close of 2013. It provides capital to companies post-closing continuity and a certainty of execution,
and management teams across the energy value Thomas said. Because we are investing on behalf of
chain, including oil and gas exploration and pro- Prudentials general account, we also have the ability
duction, midstream, energy services and energy to consider opportunities that involve longer invest-
infrastructure projects. ment horizons than would otherwise be a fit for
Prudential has the ability to evaluate and structure other banks or fund-based capital providers.
transactions on either an asset or cash-flow basis. Typical size of transactions for senior debt are
That flexibility enables an E&P team to plan the $10 million to $200 million; for mezzanine debt,
most realistic scenario to ensure sufficient capital $10 million to $50 million; and for equity, $10
is available to prosecute a development plan. Pru- million to $50 million.
dential, unlike many private-equity firms, does not Structural characteristics are investment grade and
seek controlling interest in the invested companies. below investment grade debt: typically, fixed-rate,
Because of the breadth of Prudentials investment long-term senior notes and select floating-rate financ-
interests, we have the ability to offer an E&P man- ing. Junior capital involves second lien, mezzanine
agement team a clean sheet of paper. We listen to and noncontrol equity investment capacity.
Photo by Tom Fox

USING CAPITAL
GOING IT ALONE
For these entrepreneurs, recognizing gaps in the marketplace helped them
to break away from larger companies to enter the independent world on their own.
By Taryn Peine
E
ven in an industry as old as oil and gas, there specifically target assets with a significant PDP
are gaps. For those who decide to leave the shel- component and a delineated acreage position.
ter of a large independent or major and venture Kate Richard, chief executive and founder of
out on their own, recognizing a gap and finding a way Warwick Energy Group, spent the first two years
to fill it is often the key to success. of building her business losing every deal the
Our initial team saw a void in the asset A&D Oklahoma City company bid on.
market, said Christina Hilton, vice president of Finally we said, Alright market, youre on.
reservoir engineering for Covey Park Energy LLC The market was laying down a challenge. We
based in Dallas. A big buyer pool is focused on had a light bulb moment and saw exactly what
assets that are all PDP [proved developed produc- we were going to do with the challenge and with
ing], while another large group of buyers is the opportunity. It forced us to be very critical, tar-
focused on acquiring acreage positions with very geted and analytical about our acquisition and
few wells already drilled. We wanted to play the asset-management strategy.
middle ground between high PDP and majority- The challenge that Richard identified led her to
acreage plays. We wanted to form a company to focus on nonoperated interests.

USING CAPITAL
acquire and exploit, our team is heavily weighted

When seeking financing, in transactional experience, so it requires a few
Christina Hilton, vice president of more people to get the job done.
reservoir engineering for Covey The team behind Covey Park brings deep expe-
Park Energy LLC, found private- rience within the oil and gas space and with pri-
equity players were highly focused
vate-equity-backed companies. Their combined
on the management team and
even more focused on what each track records were the biggest focus of the private-
member had done in the past. equity firms they met with.
We spent a lot of time vetting and being vetted
by private equity, she said. We found they were
We buy interests that, for myriad reasons, highly focused on our management teamand even
prior owners dont want to continue owning and more focused on what each member had done in the
that MLPs, private equity and other dominant past. The majority of us came from experienced
buyers in the current market generally arent acquisition shops, so it helped that most of us
seeking, she said. already had a good track record of working on deals,
With a unique niche and a story to tell the mar- and we brought others over with us to supplement.
ket, for most entrepreneurs the next steps are After all the vetting was said and done, Covey
assembling a team and accessing capital. Often, Park determined the best fit was Denham Capital.
the two tasks go hand-in-hand, particularly if the It liked Covey Parks business plan and advanced
capital is coming from private-equity providers, a $300-million commitment. The new company
many of which need to be comfortable with the officially launched in June 2013.
background and track record of each member of We really clicked with them and felt they
the management team. Hilton and the rest of the shared our vision for the company, Hilton said.
Covey Park team knew from the start that partner-
ing with an established private-equity fund was the Marketplace adaptation
most suitable option. The marketplace has changed in the past couple of
years. Where companies were focused on acquiring
Debt or equity? acreage, drilling a few wells and flipping, now buy-
Since Covey Park didnt have any assets, debt ers want to see more wells drilled and more acreage
financing wasnt possible for the new company. delineated, and Denham recognized that change as
Raising other forms of equity would have taken well. Its a large commitment in terms of total
too long or wouldnt provide sufficient certainty amount, but because our strategy is a little different,
of funding. The speed that private equity would we need that additional capital because higher PDP
allow us to get into the market and start doing properties are more expensive to acquire.
deals was also very attractive, Hilton said. Hilton said the initial plan for Covey Park
We felt like we were missing opportunities in involves a three- to five-year investment window,
the market. Doing a deal subject to financing is depending on its assets.
the kiss of death. You have to have all your ducks Since were already buying an asset that is 50%
in a row. developed, our ultimate goal is to further de-risk
With private equity as the best bet for funding, it, and then exit, she explained. But the exit
the entire eight-person Covey Park management strategy might vary depending on the asset. We
team met with multiple private-equity firms. think the exit will take care of itself if we acquire
Our team is larger than most historical teams, high-quality properties. Right now were more
but each member brings something unique to the focused on the asset and the resource potential
table, Hilton said. Because of our diverse back- behind it instead of the exit, so were not
grounds, our team can evaluate and operate any opposed to holding onto the asset longer if it
type of asset. And because our strategy is to doesnt make sense to sell during that three- to
USING CAPITAL
five-year time frame. Every asset has a maturity

point, and wed like to time our sale with that SOME TIPS
maturity peak. Thinking of shucking the org chart and going out on
As Warwick Energy has grown, Richards tech- your own? Take the advice of those who have success-
nical team has grown commensurate with its asset fully navigated the muddy waters of obtaining capital,
portfolio. The company owns more than 4,000 putting together a business plan and competing in the
wells across 13 states and 34 hydrocarbon basins, crowded marketplace of todays oil and gas industry.
and it specializes in exploration and production
in the Anadarko, Permian, East Texas, Gulf Coast, n Focus on your track record. Even though compe-
Appalachian and Rockies basins. tition is tight across the country, Christina Hilton of
Our technical team is led by industry greats; its Covey Park Energy still thinks its a great time to
really an Oceans Eleven team, Richard said. enter the marketplace, and having a great track
Warwick has a strong cultural chemistry and the record is the key to securing the best financial back-
level of professional excellence and camaraderie is ing to make you and your team as competitive as
inspiring. We demand a lot of our team and we possible. Theres a sizable amount of private-equity
push people hard. money looking for homes, and theyre all looking for
The type of assets Warwick acquires require a good management teams to back, she said. Youre
certain type of investor, she added, and Warwicks seeing commitments in bigger chunks. I would
investor base is comprised of public companies, advise for a team to be organized and have a clear,
insurance companies, private equity, hedge funds drawn-out plan, but most importantly, to be focused
and family offices. on its track record. Our track record was the key to
Being exclusively or majority funded by private getting the best opportunities for our team.
equity wasnt the right road for us; I didnt want n Make sure. No one who has started their own busi-
our growth to be limited by the proclivities of a ness has said it was easier than working for a bigger
particular firms viewpoint on E&P, or internal risk company. Everything is up to you, from ordering the
managements arbitrary limits of fund exposure to office supplies to meeting with investors to drilling
our team, because I knew we had a lot of horse- wells, and all of that makes going out on your own a
power and could grow rapidly into an industry daunting task for all but the most fully committed.
force, she said. As Kate Richard of Warwick Energy said, running
I wanted us to be able to grow in a way that an oil and gas business is an athletic endeavor.
was limited only by good, transactable deal flow. n Take the long view. Its about endurance, stamina,
I just couldnt hitch our destiny to one star. It was teamwork and pursuit of excellence, she said. A few
a risk but it worked out. years ago, I had dinner with Gio Valliante, an academic
Richard and her team eventually settled on fund- professor of excellence focused on golf psychology,
ing Warwick completely through their own and he went around the table asking what we thought
fundraising efforts, which are focused on investors the data showed to be the fundamental defining dif-
that have a financial or strategic reason to like ference between those who were great and those
long-dated hydrocarbons. who were truly excellent in their various fields. The
Meeting with equity partners is one of the answer: recovery time. In this business, everyone
things I love most, she said. Our equity partners faces setbacks, known unknowns and unknown
all have different but fundamental internal, strate- unknowns. You have to have water-tight assumptions,
gic reasons to be invested in energy. We help cast-iron wills and make that recovery time as tight as
them achieve that in a way that both safeguards possible when things dont go your way.
and grows capital. It has been particularly enrich- It helps to take the long view. It also helps to be
ing to work with investors from different sectors surrounded by people who dont mind if you are
who approach E&P as a sector and asset class constantly on the phone.
very differently.

CAPITAL SOURCES
pockets, sometimes spending the money is harder

I wanted us to be able to grow
than securing the capital commitment in the first
in a way that was limited only by
good, transactable deal flow. place. At press time, Covey Park was signing its
I just couldnt hitch our destiny to first acquisition.
one star. In the past nine months, we have evaluated a
large number of deals valued in total at more than
Kate Richard, chief executive
and founder of $10 billion, Hilton said. We saw a bit of a down-
Warwick Energy Group turn of the market in 2013. There was a big differ-
ence between bid and ask price, but we think
2014 will be a bit better on the acquisition front.
As Richard and her team travel the globe, meet- Weve seen tremendous growth in companies that
ing with investors and potential investors, the could become acquisition targets. But theres more
success and growth of Warwick has snowballed. private-equity money on the market than ever
Through your equity partners, you meet other before and more competition to acquire assets.
potential partners and new deals come in through Regardless of their competition, Hilton and the
investors own networks, she said. Every time you team remain focused on their strategy.
meet with investors, you understand more about their Well continue to be competitive, but internally,
investment needs, their valuation goals and funky site- we talk about who our competition is, and every
specific issues they need to structure around. One time we do this, we just end up wasting our time,
plus one doesnt equal two; it equals 10. she said. Youre never going to guess who your
As anyone will tell you who has gone into the competition is. You just need to be confident in the
marketplace with money burning holes in their number youre bidding.
CAPITAL MARKETS UPDATE
CONFIDENCE BUILDS
IN CAPITAL MARKETS
The energy sector is displaying growing stability and strength, according
to experts in investment banking, M&A and private equity.
By Chris Sheehan, CFA
A
n air of confidence is presentand seemingly
buildingin the energy sector capital markets. I would say the capital markets
Whether references are to secular trends collectivelythe investment
in energy, the durability of plays or the still- grade, high yield and equity mar-
greater scale of private equity, its hard not to ketshave never been stronger.
come away with a sense of growing stability and
Steve Trauber, Citibank head
strength. Even M&Alikened by some to Wait- of global energy
ing for Godot for its oft-projected but unrealized investment banking
appearanceis discussed in tones of expectation
as opposed to hope. These factors have translated to confidence in
I would say the capital markets collectively the energy sector.
the investment grade, high yield and equity mar- Theres a positive sentiment within the C-suite
ketshave never been stronger, said Steve as regards the outlook for the business and there-
Trauber, head of global energy investment banking fore their confidence level and, as a result, their
for Citibank. desire to think about and potentially engage in dis-
Theres a lot of cash in debt mutual funds, both cussions about possible M&A transactions, said
investment grade and leveraged finance. Banks are Trauber. I think theres an underpinning of confi-
putting money to work; institutions are putting dence that the economy is stronger, that the poten-
money to work. And notwithstanding recent tial for a near-term significant downturn is less, and
volatility in the broader equity market, energy clearly capital is cheap and readily available. From
names continue to be very strong, as people a macro environment, its conducive to M&A.
believe there continues to be secular growth in the While many E&Ps have plenty of in-house inven-
sector. Oil prices are strong, and gas prices are a tory yet to process, others are still in a transforma-
lot higher now than at this time last year. tive stage and lack the same level of growth
opportunities, Trauber said. In some
C-Corp Oil & Gas IPOs cases, the mix of assetsoil and gas, or
domestic versus internationalmay be
Pricing Issuer Amount preventing them from attaining what
Date ($MM) they consider an appropriate valuation,
2/6/14 GeoPark $98 prompting companies to pursue further
rebalancing and recalibrating of their
1/28/14 North Atlantic Drilling $125
asset portfolios.
1/23/14 Rice Energy $1,050 In the midstream sector, Trauber iden-
1/16/14 EP Energy $704 tified a growing trend towards critical
scale and mass, with companies becom-
1/16/14 RSP Permian $449
ing more acquisitive. After heavy
1/16/14 CHC Group $340 corporate M&A activity last year in
Source: J.P. Morgan midstream, midsized companies are

of the Utica/Marcellus and the Permian. He also

The constraint on growth for sees the potential for IPOs to originate from
companiesthe constraint on Canadas liquids-rich Montney play.
their ability to deploy capitalis in
There may be additional demand for equity
the ability to find management
teams than can operate at scale. internationallyTrauber cites oilfield service com-
panies offshore and Africas E&P sectoras well
Ralph Eads III, vice chairman, as for the midstream sector as it continues the
Jefferies & Co. North American infrastructure buildout.
questioning whether they are going to be long- The shift to private capital
term survivors. Or, are they going to be viewed as Ralph Eads III, vice chairman with Jefferies & Co.,
bait by the larger companies, or even some of their is similarly upbeat on the prospects for the energy
own midsized companies that view them as the sector in North America, and thinks private equity
way to get bigger? Theyre asking themselves: Are will play an even greater role, especially in taking
we bait? Or do we have to buy? early project risk.
For larger midstream players, where competitors He calls North American onshore resource
have already made some acquisitions, conditions development the highest return large asset class
may result in a little bit of a feeding frenzy in the in the world. As the better resource plays mature,
race for scale, said Trauber. Those wishing to achieve youre going to see the ability of these companies
greater scale may think, If I dont get interested in to both grow and generate free cash flow. Thats
buying now, some of my top acquisition candidates never happened in our industry, except with the
may be gone. So Ive got to look as well. majors for maybe a decade when oil prices were
In M&A action last year, Citibank Global Mar- on the rise, he said.
kets acted as lead financial advisor to CrossTex Eads reeled off a checklist of positives: good
Energy Inc. in its merger with Devon Energy Corp. return on capital employed, strong topline growth,
It was a great match, said Trauber. And in terms free cash flow generation. Theres nothing else
of ongoing M&A interest, Were still seeing a high like it in terms of an industrial business, he con-
level of activity, he added. tinued, and I think it is durable. The key issue for
Regarding IPOs, Trauber sees continued scope E&Ps, in his view, is portfolio quality. The guys
for E&Ps in high-growth basins to achieve better with high-return portfolios are getting valued very
valuations by going public. well; and the guys with the less good portfolios
Most companies with high-quality assets that are trying to figure out how to get a better portfo-
have substantial development of those assets ahead lio. This is a world of haves and have-nots.
of them will find a better value in the public market One notable change is in funding sources. A lot
than in the strategic market, he said. The buyside of the financing activity is shifting from the public
has become very sophisticated in analyzing devel- capital markets to the private market, he said.
opment plans and arriving at a net present value There has been a huge shift in which private cap-
based on discounted future cash flows. Strategic ital has become a really important component of
buyers are more likely to value assets based on a how the industry finances itself. By my estimates,
premium to acreage value, plus one or two years private-equity sponsors have raised roughly $50
of cash flow growth, but are not willing to pay for billion of dry powder dedicated to oil and gas in
a 10- or 20-year development plan. With typically the past 18 months. If you just lever that one to
limited initial cash flow, its dilutive. one, thats $100 billion of available capital dedi-
Like other observers (see April 2014 Oil and cated to oil and gas.
Gas Investor, The Fashion Window Opens for Behind the move to private capital is an increased
IPOs), Trauber expects companies launching willingness to take on the aforementioned early
IPOs to operate mainly in the high-growth basins project risk. Theyve become more sophisticated.
Private capital is increasingly willing to come into taken up by private equity as the new joint-ven-
an asset early in its life, he said. Then, as the asset ture buyers, said Eads, citing names such as KKR,
matures and becomes de-risked, they take it to the Blackstone Group and TPG Capital.
public market and monetize it at a profit. Will they pay promotes along the lines of earlier
The scale of private equityespecially in the international joint ventures? Deal structures
context of a single companyis in some cases today involve different kinds of promotes. But
remarkable, as exemplified by American Energy absolutely they will pay promotes, Eads said.
Capital Partners, headed by Aubrey McClendon.
McClendon is putting together a series of M&A uptick
regionally focused portfolio companies, according Improved tone in the M&A market and wide
to Eads. Already in place are subsidiaries focused open equity markets for issuers are contributing
on the Utica and the Woodford shales, and two to a positive capital market outlook in energy,
or more other regional entities are in the pipeline. according to Nathan Craig, managing director in
He projects that the companys enterprise value energy investment banking at J.P Morgan.
will likely reach $15- to $20 billion within the Theres been a material uptick in the amount of
next 12 months. strategic dialogue weve been having with our
Thats a scale that private capital has never acted clients over the past couple of years, said Craig.
on beforeto finance an E&P from startup to an Confidence is certainly up among our client
activity level that could be $15- to $20 billion. CEOs, and usually that added confidence will
It is in operations that limits could arise in put- breed an increase in M&A activity. And with com-
ting capital to work, Eads said. modities recently trading in a narrower range, get-
The constraint on growth for companiesthe ting buyers and sellers to agree on valuation tends
constraint on their ability to deploy capitalis in to be easier, he added.
the ability to find management teams than can With increasing confidence coupled
operate at scale. The industry is suffering with a backdrop of more stable commod-
from a significant human capital con- ity prices, hopefully this year will trigger
straint that becomes more and more the public M&A that weve all been
evident all the time. Its the biggest waiting for so long, Craig continued.
constraint on the rate of growth of the Remember, the private asset market
North American industry, he said.
Midstream capital requirements are
expected to remain robust, as infra-
structure buildout continues in high-
growth areas like the Utica/Marcellus,
and facilities are built to support liquefied
natural gas (LNG) and ethane cracker proj-
ects. Funding will come as MLPs continue to
tap into equity markets, and as E&Ps strike
deals with private equity, such as Gulf-
port Energys agreement with
MarkWest Energy Partners and
The Energy Minerals Group in
the Utica, said Eads.
Prospects for new E&P joint
ventures with strategic over-
seas partners remain on the back
burner, with much of the slack being

has been very healthy; it is the public-to-public

M&A activity that we havent been seeing to date. Confidence is certainly up among
our client CEOs, and usually that
Recent asset market transactions involving J.P.
added confidence will breed an
Morgan include two acquisitions by Fieldwood increase in M&A activity.
Energy that immediately made Fieldwood a major
player on the Gulf of Mexico shelf. Nathan Craig, managing director,
One, led by J.P. Morgan last September, energy investment banking,
J.P. Morgan
involved a $3.625 billion loan financing package
for Fieldwoods acquisition of Apaches Gulf of
Mexico shelf assets. The package was comprised totaling $2.8 billion. Meanwhile, MLP issuance
of three tranches: a $1.2 billion, five-year revolving came from 17 secondary offerings, totaling $5.2
credit facility; a $700 million, five-year first-lien billion, and was lagging behind prior-year levels.
term loan; andin what is said to be the largest For those E&Ps in favored basins weighing the
second-lien term loan ever to be raiseda seven- benefits of an uplift in valuation via going public
year, second-lien term loan of $1.725 billion. as opposed to a private sale of assets, the institu-
With equity financing provided by private-equity tional market likes to see pure plays that are
sponsor Riverstone Holdings LLC, the transaction focused on a single basin rather than a conglom-
was remarkable in that it was a clear demonstra- erate portfolio, Craig observed. But even if youre
tion of the depth of both the private-equity market in multiple basins, given how supportive the IPO
and the institutional loan market, said Craig. You market is, youd want to consider that as an option
marry oil and gas private equity, which seems to alongside M&A. And by running a dual-track
get larger and larger every year, with the very sup- process, if someone approaches you with M&A,
portive institutional loan market fundamentals. you can always exit that way.
Improved valuations
ITS REALLY ABOUT PULLING At Johnson Rice & Co., Josh Cummings, co-head
NET ASSET VALUE FORWARD. of energy investment banking, said improving cap-
NO ONE WANTS TO HOLD THAT ital market conditions in energy date back to first-
quarter 2013, when energy in general began to
MUCH ACREAGE.
find a broader institutional following.
What really changed was seeing the long-only
Josh Cummings, Johnson Rice & Co.
funds come back in and provide an underpinning
of demand for the energy names, and that has
A second transaction was Fieldwoods $750 mil- allowed for substantially better execution in the
lion purchase of Gulf of Mexico and Gulf Coast capital markets. Obviously, energy stocks have per-
properties that the management team had previ- formed reasonably well over the same period; its
ously sold to SandRidge Energy when they were probably been the best weve seen since the 2008
with Dynamic Offshore. Also led by J.P. Morgan, to 2009 collapse.
the financing similarly included a second-lien term Improved valuations have come with better
loan, which was priced at a tighter spread than that growth and improved risk-return metrics, he noted,
in the Apache transaction, resulting in an all-in yield allowing energy to attract a larger investor base.
of 8% versus 9.125% on the prior transaction. With the kind of growth profile people are
In terms of equity issuance, the market is wide looking for in terms of rising production, earnings
open, with the upstream sector continuing to be and cash flow, the industry has been able to start
the more active issuers, according to Craig. C-corp getting pretty attractive valuationsand a pro-
issuance early in the first quarter was outpacing nounced period of expanded multiplescom-
last years levels and included six energy IPOs pared to where theyve traded historically.
Cummings cites Johnson Rices early understanding

Youre not seeing the big
of basin economics and its ability to articulate the
swings from peak to trough
that characterize so many value proposition of specific plays.
cyclical industries. We identified early on that the value proposition
was a product not just of reserves, production or a
Josh Cummings, co-head, energy multiple of Ebitda, but also a product of what an
investment banking,
E&P could do with that unconventional acreage,
Johnson Rice & Co.
said Cummings. If we at Johnson Rice have carved
out a niche, its that weve been able to execute pub-
Youre not seeing the big swings from peak lic equity offerings for early-stage companies that
to trough that characterize so many cyclical dont have much of a tangible metric today, but that
industries. And if there is less perception of we see developing one in the future.
riskand youre still delivering good growth With private equity abundant, is it competing with
and returnsinvestors tend to worry less about more traditional capital sources in markets serving
timing as it relates to entering and exiting the small/midcap E&Ps? For a lot of private-equity spon-
stocks. They become investible rather than sim- sors, the model thats worked extremely well for
ply trading stocks. them is to start with a management team and a clean
The majority of Johnson Rices client base is slate, and they dont want to be cluttered with legacy
comprised of small/midcap energy companies. assets, said Cummings. For a private company that
Many of its E&P clients have put together signifi- already has a set of legacy assets, the valuation dis-
cant acreage positions in resource plays, with cussion can become a little harder for private-equity
much of it now delineated between core and sponsors who would prefer to build out an initial
noncore positions. In some cases, with a small position of their own and get an uplift in value.
base of production and cash flow, acreage may How do financiers projections for the current
translate into 20 to 30 years or more of inventory year compare with last year?
at current rates of drilling. We expect to be extremely active for the
As a result, capital demand is mainly for turn- remainder of the year, said Cummings. From
ing the drillbit to the right and converting where we sit today, I would expect it to be sim-
undeveloped leasehold into production, cash ilar to last year.
flow and reserves. Gray concurs. Based on our pipeline of busi-
Its really about pulling net asset value forward, ness so far, it looks like another robust, record-set-
says Cummings. No one wants to hold that much ting year, similar to 2013.
acreage. The E&Ps program And as with other market participants, even as
has got to scale up to pull some Citis energy investment-banking group business
of that present value forward by in mid-April was outpacing the prior years level,
accelerating the conversion of those projections are for full-year performance to be
drilling locations. Thats where similar to last year. Partly, this reflects a natural
youre seeing the bulk of the capital conservatism early in the year. Its a very, very
dollars go to work. He noted that robust environment, said Trauber. Year over year
some E&Psdepending on the size were up, but anything can happen in the back half
of their existing base production of the year.
are achieving growth rates of 20% to But actions also tell a story. Citi is actively hiring
80% per year. more energy bankers to accommodate rapidly ris-
While institutions today recog- ing levels of business.
nize more widely these pro- Activity continues to be extraordinarily robust,
grams ability to generate attrac- Trauber said. The level is at a feverish pitch. Its
tive, risked rates of return, never been busier.
FIXED INCOME
FIXED INCOME FAVOR

A broad range of energy companies has
stepped up to the new issue market.
E
nergy continues to find favor in fixed income mar- ment grade oil and gas sector. Through March,
kets, where the recent low interest rate policies of issuance by North American and international
the Federal Reserve coupled with near-record low companies came to $21 billion, with a further
credit spreads foreshadow what could be another very $15 billion placed by emerging market issuers.
robust year of issuance by the oil and gas sector. Across all economic sectors, new issuance was also
Despite earlier fears of rising rates as the Fed unusually high, outweighing first-quarter redemp-
tapers its bond purchase program, the interest tions by a ratio of more than 1.5 to 1, according
rate environment has remained attractive, with the to Barclays research.
10-year U.S. Treasury note yielding 2.72% at the But issuance by the oil and gas sector extends
end of the first quarter. This puts the 10-year rate much more widely than just to investment grade
in the lowest fifth percentile over the past 15 years, issuers. And in large part, this reflects investors grow-
while credit spreads are at the lowest level since ing understanding of individual basins in resource
the financial crisis, according to Barclays data. plays, as well as their comfort with the sector as a
Issuers have not been slow to take advantage of the safe haven with yield, said Greg Hall, who heads
low interest rates. The new issue market has seen a up natural resources debt capital markets at Barclays.
broad range of companiesincluding major oil com- Investors are very bullish on the oil and gas
panies, midstream players, independent E&Ps and industry at the moment. This is an industry
othersstep up to the plate. Notably, even Exxon is where a lot of investors feel they understand
reported to have placed a $5.5 billion issue, marking what is going on in the Bakken, Eagle Ford and
its return to the market after a 21-year hiatus. Marcellus, among others, said Hall. They view
Market participants note exceptionally strong oil and gas as a safe place to invest. Youre talk-
issuance in this years first quarter by the investing about buying bonds backed by cash flows

FIXED INCOME
from hard assets in the ground, and that has an Locking in

appeal to a lot of people. Who has turned to the debt markets to lock in low
The fact that energy issuance offers investors a rates of late?
chance to buy nonfinancial paperin relatively In the first quarter, the midstream sector saw sig-
short supply as compared to financial issuance nificant new supply, with about $10 billion in
is also working in the sectors favor. issuance, as master limited partnerships (MLPs)
There hasnt been as much nonfinancial paper met refinancing needs and planned for heavy cap-
as investors would like to buy, explained Hall. As ital expenditures on infrastructure projects. At $10
a result, investors will pay a slight premium. And billion at the end of the first quarter, midstream
that is one reason why were back to credit spreads accounted for just under half of energy investment
that are close to pre-crisis tights. Investors feel like grade issuance.
they can get their arms around oil and gas plays, Among the larger deals by MLPs were those by
and they have a high degree of confidence that the Enterprise Product Partners ($2 billion), Kinder
debt will be repaid. Morgan Energy Partners ($1.5 billion) and EnLink
While interest rates were expected to trend Midstream Partners. EnLink Midstream, combin-
upward as the Fed began its program of tapering, ing the assets of CrossTex Energy with substan-
rates have been slow to move higher. Hall cites tially all the U.S. midstream assets of Devon
weather-related temporary weakness in the econ- Energy, placed a $1.2 billion inaugural investment
omy as well as a flight to safety due to geopolitical grade issue.
factors, notably in the Ukraine, as factors tending Hall described Enterprise and Kinder Morgan
to hold rates down in the first quarter. as bellwether issuers who perceived rates to be
In addition, Hall noted the strong technical lower than anticipated and, with fixed income
backdrop in the new issue market, where a signif- markets wide open, chose to come to market.
icant amount of bonds are due to mature in the Also coming to market in the first quarter were
first half of 2014 across the entire investment several major international oil companies. Notable
grade market. This means investors are receiving were issues by Total ($2.5 billion), Petrobras ($8.5
a lot of cash, and they are incented to quickly billion) and Pemex ($4 billion).
redeploy this capital in the new issue market. With oil and gas investment grade issuance in
This partly explains why interest rates remained the first quarter already running at twice prior year
acquiescent in the first quarterand why invest- levels, how will the balance of the year unfold?
ment grade issuance across all economic sectors Hall allows for a possible slackening from the
hit a record level of $292 billion. current breakneck pace resulting from issuers
Because you had so much debt maturing in the desire to act preemptively ahead of potentially ris-
first quartera lot of it five-year paper issued post- ing rates and widening spreads.
crisis in the first quarter of 2009you had an We expect issuance for the remainder of 2014
incredible technical backdrop of money flowing to be robust, as the debt market is likely to remain
into the coffers of investors, recalled Hall. That, attractive. But, to some extent, weve probably seen
coupled with a weak economic backdrop and the some frontloading in terms of 2014 issuance.
concern over the Ukraine, added up to almost a per- Hall identified two wild cards that could influ-
fect storm and continued to hold coupons down. ence the course of events in coming months:
However, low interest rates are not expected to last potential merger and acquisition activity and,
for long. Barclays anticipates an upward drift in additionally, shareholder activism.
rates as the tapering program approaches completion Weve certainly seen a pickup in M&A activity,
in October of this year, and predicts the Fed will likely said Hall. Theres a high expectation out there
begin tightening around the middle of 2015. Bar- that there will be some consolidation, especially
clays rate forecast is for the yield on the 10-year U.S. in the midstream, much of which would be
Treasury note to rise to 3.40% by the end of 2014. financed with long-term debt.
PRIVATE EQUITY
PRIVATE EQUITY DIVERSIFIES

The shale bonanza means energy has become structurally short capital.
By Gregory DL Morris
F
or all the new private-equity funds and to grow faster than the influx of investment. That
investorsand the billions of dollars pouring is true even with the new funds from some major
into the oil and gas sectorenergy is actually firms, and the new entrants at all levels.
underweighted in the PE universe. First Reserve is doing its best to address both
That assertion comes from one of the most situations, with 80% of its assets in a series of
experienced managers in the business, Alex funds that focus on buyout opportunities up and
Krueger, president of First Reserve Corp., an down the energy sector from exploration and pro-
energy-only firm with more than 30 years experi- duction to midstream, downstream, equipment
ence and $20 billion in assets under management. and services. Separately, 20% of the assets are
Reflecting on the growing presence of the big diver- focused on an energy infrastructure strategy that
sified houses with funds dedicated to energy, as well is playing out from its first such fund, focusing on
as the proliferation of boutique managers, he notes long-term cash flow generators such as contracted
that PE is under-represented in energy investing just pipelines, but also power, utility, renewables and
as energy is under-represented across private equity. even floating offshore production units.
Given the inflation in capital expenditures and Keynote companies that First Reserve has
operating expenditures in energylevels have helped build in the past include such blue-chip
been in the high single digits or low double digits names as National Oilwell Varco, Weatherford and
for several yearsthe need for capital continues Dresser-Rand.

PRIVATE EQUITY
ANRP closed on $1.3 billion of incoming com-

mitments in 2012, more than half of which has
We like the idea of oil and been committed to operating companies so far.
gas evolving into more of a With Apollos size and experience, it could
manufacturing process. shoot for the moon, but Beard said it retains a
strong conservative foundation and keeps a con-
Alex Krueger, president,
sistent value bias in its upstream commitments.
First Reserve Corp.
That hardly means being unadventurous, however.
Indeed, given the valuations for acreage and oper-
Most of our growth has been in identifying ators in some of the hottest basins, value investors
long-term sustainable trends, said Krueger. Of almost have to venture a little farther afield.
the more than 100 portfolio companies weve Most recently, Apollo-backed Caelus Energy
had, we have made over 375 add-on transactions. Alaska closed its first transaction, the acquisition
In exploration and production the opportunities of Pioneer Natural Resources Alaskan oil and gas
continue to evolve as technologies are applied in business for $300 million in cash, subject to
new areas. He said those include the most adjustments, plus other consideration. Caelus,
advanced unconventional horizontal drilling and based in Dallas, is led by CEO James C. Mussel-
completion techniques applied to conventional mam, who previously led Kosmos Energy, which
vertical wells, or even enhanced recovery methods. discovered the 1 billion-plus barrel Jubilee Field
That approach extends to equipment and serv- off the West African coast; and Triton Energy,
ices. Most of our investments are production which was acquired by Amerada Hess for $3.2 bil-
related, ways of making drilling and completion lion. Apollo funds have the opportunity to invest
more efficient, said Krueger. up to $1 billion in Caelus in aggregate.
We like the idea of oil and gas evolving into more Beard emphasizes Apollos equanimity through
of a manufacturing process. We like to see technol- the first rush of the unconventional era.
ogy applied up front for most efficient drilling and The cool factor never really impressed us. We
completion, then again for re-entry or enhanced are much more interested in rate of return. Up to
recovery. That is more effective than looking for as recently as three or four years ago, we had sig-
geology to overcome operating inefficiencies. nificant investments in vertical development in the
Permian, for example. Now most of our capital is
Beyond the cool factor going into horizontal developments, because we
Apollo Global Management is one of the largest believe they will generate better returns. But if the
alternative investment managers in the world, and it resource boom had never come along, we believe
just closed Fund VIII at the end of 2013 with $18.4 we would have been doing fine drilling vertical
billion of aggregate commitments, of which up to wells in the Midland Basin.
approximately 20% may be dedicated to the energy Apollo was also not overly impressed in the
sector. According to Greg Beard, senior partner and early days of shale, when operators seemed to tout
head of natural resources at Apollo, in that alloca-
tion, the big firm is sticking to its proven formula.
Fund VII (raised in 2008 with $14.7 billion),
The cool factor never really
also allocated about a fifth of its capital to natural impressed us. We are much
resources. In addition to its flagship private-equity more interested in rate of return.
funds, the firm also operates Apollo Natural
Resource Partners (ANRP), which focuses on Greg Beard, head of
equity commitments of generally $150 million natural resources,
Apollo Global Management
and less; it may also co-invest in some transactions
alongside Apollos larger private-equity funds.
PRIVATE EQUITY
how much they spent on wells. That trend has

reversed, and Beard is encouraged. Industry is
Execution, however, is what
doing a good job now of finding ways of being sets great teams apart from
more efficient, reducing costs per barrel or Mcf. good teams... .
Which is not to say that industry, or PE backers,
are spending less overall. As an industry, we are Danny Weingeist,
going to be spending hundreds of billions of dollars managing partner,
Kayne Anderson Energy Funds
drilling shale, said Beard. Given the drilling inven-
tories that upstream participants have, they are not
keen to spend on infrastructure. Instead, they the market is favoring focused players with fewer,
believe they need to put their dollars into the drillbit. more concentrated operations over ones with
That opens other opportunities for midstream exposure to multiple basins.
operators and the PE funds that specialize in that
segment. The emphasis upstream on efficiency and Gone to Texas
focus continues to stoke the acquisition and This spring marked one important closing and one
divestiture market. Last year the upstream A&D even bigger opening for Pine Brook, a $5-billion
market was approximately $50 billion, and we private-equity firm specializing in energy and
believe that is likely to continue, maybe even financial services. In February it closed Fund II at
grow, said Beard. $2.435 billion, well above the target of $2 billion.
Returning to the theme of value, Beard notes a Then late in April, the New York firm opened a
big disparity between the high-growth operations major office in Houston.
that may carry valuations of 15x EBITDA, and Pine Brooks Houston team will support the
others that can run as low as 4x. Clearly it appears firms investments in the region, including
PRIVATE EQUITY
Common Resources III, Green Bancorp, GR En- unconventional plays are actually outside of North
ergy Services, Community Trust Financial and America, particularly in South America, and we
Stonegate Production. The office will be staffed by have an asset we are pursuing in Colombia.
Michael McMahon, a founding partner and man- Pine Brook is also looking north. Canada is
aging director of the firm; senior advisors Richard also an excellent spot and a major focus of atten-
Stoneburner and Martin Houston; and Claire Har- tion, said Aube. Capital markets have been insuf-
vey, a vice president on the energy investment team. ficient for providing the amount of support
The PE market in general is reacting to a very required to develop the plays in Canada. Just as in
large and very attractive opportunity in oil and the U.S., there is an unconventional resource rev-
gas, said Rich Aube, managing director of Pine olution in western Canada with many historically
Brooks energy investment team. From a capital productive plays being rejuvenated by the applica-
standpoint, the industry has changed completely. tion of the new technologies.
It used to be a source of capital. Operators were So, were going into Canada with private-equity
long cash and short investment opportunities. capital know-how and with strong management
Now that has been reversed. teams as partners. So far, we have completed two
Since inception in 2006, Pine Brook has formed investments in Canada, both of which are in our
29 companies, 16 in the energy sector. The major- latest fund. One of the investments is focused on
ity have been upstream, primarily in North Amer- liquids-rich gas plays and the other is focused on
ica. The firm has also formed two services thermal heavy oil.
companies that were created by the emergence of Across all asset types and geographies Aube has
resource plays. Brigham Exploration, Elevation observed a heightened sophistication by investors
Resources and GR Energy Services represent three about what is being produced by which operators
recent investments. Brigham and Elevation are pri- in which plays. As evidence, he notes that an
marily acquire-and-develop operators while GR is increasing number of producers have adopted
a services company. Pine Brooks investment pro- three-stream reporting to detail exactly their lift-
fessionals have led some notable investments over ings in crude, NGLs and gas, rather than lumping
the course of their careers including the IPOs of production into one BOE or Mcfe number.
Antero Resources, Bill Barrett Corp., Kosmos
Energy, Newfield Exploration and Targa Resources. The year of execution
Downhole completion and production services More than a few operators have referred to 2014
are two specific areas in services that look com- and into 2015 as the year of execution, having
pelling to us, said Aube. In more recent years, delineated their acreage and set their drilling
weve formed companies that are active in devel- budgets. For Kayne Anderson Energy Funds, this
opment opportunities as the industry has become year and next are looking like the year of realiza-
long inventory and short capital, particularly in the tions, said Danny Weingeist, managing partner.
Permian Basin. We have also started to take our Fund VI, which closed in 2012, is almost fully
business internationally. Some of the best rocks in committed, so we will probably be launching Fund
VII early next year, but otherwise, we are mostly look-
ing at realizations. Kayne Anderson Capital Advisors
has about $26 billion in total assets under manage-
We are still of the view that ment with about $22 billion of that in energy.
gas is range-bound. Of the 16 management teams Kayne has backed
in Fund VI, approximately half are repeat teams.
Peter Leidel, principal, Also, about half of these teams are lease-and-drill,
Yorktown Partners while the other half are acquire-and-exploit,
Weingeist said. It used to be that a team could lease
acreage, delineate the asset by drilling 10 to 20 wells
PRIVATE EQUITY
and then sell. Now, most buyers already have large

inventories of drilling opportunities, so in order to
interest them, our teams need to further de-risk the We are almost all unconventional
asset, which may mean drilling 60 to even 100 wells. with a bias toward liquids.
This trend means some additional capital and
Chris Manning, energy partner,
potentially longer hold periods. Technically, yes, Trilantic Capital Partners
there is some risk any time you are holding an
asset longerthere is asset risk and commodity
risk. The first 20 wells are the riskiest. Once you
have figured out how to drill the wells, complete want to know, before we are in too deep, what sort
the wells and are comfortable with your reserve of an asset we have and you simply cant do that off-
estimates and economics, the asset risk is reduced. shore. That most likely means Texas, the Midconti-
If you have to drill four times as many wells that nent, the Rockies, Louisiana and the Gulf Coast.
doesnt mean four times as much equity will be
required. It could be that only twice as much equity Dry powder for liquids plays
is needed. In drilling these additional wells, there is It may be difficult to remember that the sector was
less asset risk but more market or commodity risk. not always a darling of PE managers or investors.
Looking ahead to Fund VII, Weingeist does not One of the early pioneers was Yorktown Partners,
anticipate Kayne changing its M.O. much. Weve based in New York and co-founded by Bryan
been very fortunate to have backed good teams. Lawrence, Howard Keenan, Peter Leidel and Tom
That has made our teams and our investors LaCosta. The firm has $4 billion in assets under
money. Weve also been very fortunate that weve management, all in energy. That is primary
seen good deal flow over the years. Execution, upstream, with some midstream and a piece of
however, is what sets great teams apart from good coal, according to Leidel.
teams and good teams apart from mediocre teams. Usually the most impressive number for a PE
One way to mitigate execution risk is to back fund is its total assets, but for Yorktowns latest, it
teams that are experts in specific basins. is the ordinal: Fund X was raised in May 2013
We love the idea of backing the number two or with $1.6 billion, of which almost a quarter has
three guy from one of the district offices of a large been committed. Yorktown works on a two, or two
independent, who on day one has a team he has and a half year, cycle, which gives a good idea of
worked with for years. That team will know that how long Leidel and his team have been in the
basin exceptionally well and be able to optimize game. Fund IX was closed in October 2010 with
that acreage into something that will be very $1.272 billion, of which more than 90% has been
attractive to potential buyers. invested. We still have a bit of powder in that
A solid position in one area is almost exclusively fund, he noted dryly.
onshore for Kayne. You never say never, but offshore The long cycle time is certainly not for lack of
is about as close to never as we are going to get. We opportunity. Quite to the contrary it is a mark of
discipline, he said.
We have tried to maintain consistent focus and
strategy, and to back good management teams. We
Across all asset types and
geographies, Pine Brook were early entrants to most of the major shale
managing director Rich Aube plays, but to enter established basins today would
has observed a heightened be very expensive from the perspective of either
sophistication by investors about acreage or production.
what is being produced by which The recent focus for Yorktown has been
operators in which plays.
upstream, where existing vertical developments are
shifting to horizontal drilling. That does not nec-

PRIVATE EQUITY
essarily have to be unconventional development

strictly speaking, just applying horizontal tech-
niques to established fields, explained Leidel.
The other sector of interest is the midstream, but
not gas E&P. We have not yet recommitted to
gas, Leidel said. We are still of the view that gas
is range-bound in the $4- to $5 per Mcf band,
which is just not that attractive in most basins.
Regardless of the asset or opportunity, Yorktown,
like many PE firms, prefers to back just one
upstream and one midstream operator in each
basin; more that one is possible in larger geogra-
phies such as the Permian.
Unconventional
Trilantic Capital Partners closed its fifth institu-
tional fund, Fund V North America, in December
2013 with $2.2 billion. We still have fresh capital
available for commitments, said Chris Manning,
energy partner. Trilantic allocates capital from its
fund into four distinct sectors: energy, business
services, consumer and financial services. No more
than one third is in any one area.
The energy allocation of Fund IV was approxi-
mately 25% to 30% out of a pool of $1.9 billion
that was closed in 2007. Notable names that
Trilantic has backed include Antero Resources,
Enduring Resources and TLP Energy.
We are almost all unconventional, said Man-
ning, with a bias toward liquids. We are very
focused on not exposing capital to multiple teams
in the same basin. That was the strategy when we
started, and is still the strategy today: bias toward
liquids one team per basin.
The bias is just that, a preference, not a prohibi-
tion. Capital needs to identify attractive risk-reward
opportunities, he said. If we can find an all-black-
oil opportunity, great. But some combination of oil,
liquids, and gas can be attractive as well.
Manning explained that the bias is not just
from Trilantic, but also from the market. Buyers
prefer easier rather than harder, he said. There
is always the diversification argument, the upside
argument, but in deals we see buyers going for
simple rather than more complex. People want
something targeted, often to fill a specific need
in their portfolio.
CAPITAL FOR SMALL CAPS
BULLISH ON BARRELS
At the smaller end of the capital-markets spectrum,
raising capital becomes a team sport.
By Carl Goltermann and Adam Connors, Northland Securities
A
s the macro economy continues to lift itself out debentures, as well as by market capitalization.
of the doldrums of the worst economic crisis Following investor demand over the last few years
since the Great Depression, a continued bright has been a great demonstration of the capitalistic
spot is the momentous shift toward energy independ- engine, with none more centric than the young,
ence here in the United States. Much of the progress can nimble small-cap enterprises that have established
be traced back to the relatively recent advent of engi- a new or enhanced method of extracting hydro-
neering hydrocarbons out of the ground via unconven- carbons from the ground and raising more than
tional extraction methods. As typical with engineering their share of capital.
business models, a theory was developed, tested for The following definitions are used throughout
effectiveness and feasible economics, and then rolled out this article: micro-cap is a company whose market
in mass production when all litmus tests were met. capitalization is less than $250 million; small-cap
The U.S. E&P industry has been going through is less than $2 billion; mid-cap is less than $10
this transformation for the last few years within billion, and large-cap is any company whose market
multiple basins. Many E&P companies have proven cap is greater than that. Public issuances
their models and moved into mass production by include S-1 or S-3 filings with the SEC. Private
demonstrating their ability to multiply an investors issuances include private investment in public
dollar via interest payments or equity appreciation. equity (the so-called PIPE structure), the Rule 144A
In order to identify the latest trends in the flow offering, the Registered Direct Offering, or the Con-
of capital and see where companies of different fidentially Marketed Public Offering (CMPO).
sizes have had success garnering investors atten- From 2011 to 2013, we saw a decline in the
tion, we separated capital issuances during 2011- number of small-cap common stock issuances,
2013 into common stock, preferred stock and while mid-cap issuances steadily increased, mainly
because small-caps were the
fastest companies to out-
grow their market capitaliza-
tion group. Some 31% of the
capital raised by mid-caps in
2013, and 18% in 2012,
was by companies that had
raised capital as a small-cap
the prior year.
Part of the decline in the
number of small-caps raising
money was offset by five
IPOs in 2011 and three in
2012. While we did not
see the same shift of compa-
nies from micro-cap to small-
cap, one of the large-cap

issuances in 2013 was by

Cobalt International Energy,
which had raised money as a
mid-cap in 2012.
Not surprisingly, micro-cap
companies have had the most
difficult time raising equity
capital. They tend to be
unknown to the Street, have
little to no research coverage,
typically lack readily regis-
tered shares due to SEC or
other securities law con-
straints, and are often not
listed on a national exchange.
Going from a micro-cap to
a small-cap and beyond
tends to be a very team-oriented sport, as many issuers over the past three years. MLPs made up
in-house resources available to their larger peers 34%, 47% and 31% of small-cap transaction value
are not available to the more entrepreneurial micro- and 50%, 49% and 39% of mid-cap transaction
caps. Successful micro-cap companies require value in 2011, 2012 and 2013 respectively. There
aligned partners, such as legal counsel, investor re- were several MLP debt issuances during this
lations experts and investment bankers, to spon- period as well, but not nearly as high of a percent-
sor them and help hone their story, determine the age of capital raised as on the equity side.
most appropriate sources of capital, and begin to
introduce them to the fundamental investors who Debt
will be accretive to their growth story. Without this Debt usually has the lowest cost of capital for
sponsorship, micro-cap companies have a difficult growing enterprises, but rarely has it been as low
time increasing their size at the same rate as their as it has been over the past three years. With
larger, more established peers, and are often left interest rates being artificially held down by the
questioning the enormous cost of being an SEC- Federal Reserve Bank to stimulate growth and
reporting public company. increase lending, it is not surprising that corporate
In conjunction with the activity by corporate debt financing is being utilized by one of the more
issuers, it was also interesting to see the large num- profitable industriesoil and gas.
ber of E&P master limited partnership (MLP) New issuances of debt experienced a significant
ramp in 2012, a year in which the rate on the
10-year Treasury never went above 2.37%. Each
ANOTHER CONSEQUENCE OF E&P market capitalization group experienced an
THIS LOW INTEREST RATE increase in both the number of issuances and the
total capital raised via debt securities.
ENVIRONMENT IS THAT INVESTORS
The debt market also had a strong year in
HUNGRY FOR HIGHER YIELDS ARE
2013, especially considering the rate on the
LOOKING BEYOND INVESTMENT- 10-year Treasury rapidly increased from 1.63% to
GRADE DEBT TO EITHER JUNK 2.59% between April and June. Until the Federal
BONDS OR PREFERRED STOCK. Reserve increases the Federal Funds Rate to a
more normal level, or commodity prices fall
enough to challenge the viability of using leverage,
Like debt, preferred

stock can also have a call,
floating rate, and/or con-
version feature, providing
ample flexibility.
Preferred stock issuances
tend to be much more of a
retail-oriented product, result-
ing in smaller transaction sizes
in the $5- to $50-million
range, on average. Smaller
companies are therefore more
apt to issue preferred stock,
with micro-caps having pre-
ferred stock issuances com-
prise 5%, 9% and 14% of total
capital raised in 2011, 2012
and 2013, respectively. How-
ever, small-caps have been the
most successful with the pre-
ferred structure from the per-
spective of total capital raised,
with over $900 million sold
by issuers from 2011 to 2013.
Going forward, the energy
space, especially domestically,
will continue to require inor-
dinate amounts of capital to
continue the shift toward a
more self-reliant nation. The
engineering model in the oil
and gas space is one where
debt will continue to be the logical source of cap- the exploration risk is removed and it becomes a
ital, especially among larger companies. The low matter of determining the most effective drilling and
issuance cost and overall cost of capital is too at- completion methods, evolving these methods to
tractive to be ignored. reduce costs, and then manufacturing the play as
efficiently as possible. Those that can demonstrate
Preferred stock this, on the scale to attract institutional quantities of
Another consequence of this low interest rate capital, continue to have access to seemingly unlim-
environment is that investors hungry for higher ited growth capital to fuel their future.
yields are looking beyond investment-grade debt Sources: FactSet Research Systems, Placement-
to either junk bonds or preferred stock. From an Tracker. This is not a recommendation to buy or sell
E&P issuers perspective, preferred stock has a few any products discussed in this article. The opinions
advantages over similar-yielding junk bonds: it can expressed in this article are those of the authors,
be structured as perpetual in nature, is unsecured, they may change without notice, and they do not
has lighter covenants, and often does not carry a reflect the opinion of Northland Securities Inc.,
penalty for missing a payment. member FINRA/SIPC.

MLPs
A PREFERRED
OPTION FOR MLPS
Issuing preferred equity offers a third financing tool to MLPs.
R
eminding CFOs that theres a third option in what was the inaugural issue by an MLP of a
besides just debt and common equity is how nonconvertible perpetual preferred.
Seth Appel, co-head of energy investment Once Vanguard did its $175 million follow-on
banking at MLV & Co., often presents the idea of a pre- offering, then everybody realized you could do this
ferred equity issuance by a master limited partnership in size, said Appel.
(MLP). Of late, more energy MLPs have been acting on Closely following Vanguards move was mid-
the idea, with some $351 million of preferred equity stream MLP Atlas Pipeline Partners, which issued
issued in early 2014 and more on the way. $126 million, and upstream MLP Legacy Reserves
Perhaps the most notable example of this third LP, which issued $50 million, in preferred.
financing tool used by an MLP was Vanguard Nat- Notably, the Legacy issue incorporates an innova-
ural Resources issuance of $175 million in pre- tive fixed-to-floating rate feature. The preferred
ferred shares in March of this year, carrying a issue pays a distribution of 8% of par value per
7.625% dividend at issuance. This was effectively annum through April 2024; it then moves to a
an endorsement by Vanguard, which last June floating rate equal to three-month Libor plus a
raised some $63 million, with a 7.875% dividend, spread of 5.24% per annum.

MLPs
What are some of the market factors driving the

rising popularity of preferred issues as a new asset
Importantly, it [preferred units]
class, or pool of capital, for MLPs? gives the retail investor an ability
First, of course, is the Federal Reserve policy of to invest in what they view as the
holding down interest rates, under which five-year debt of an MLP.
certificates of deposit barely yield 80 basis points,
Seth Appel, co-head of energy
while the rate on the 10-year U.S. Treasury note
investment banking, MLV & Co.
has hovered around 2.65% to 2.75% of late. This
has fostered demand for alternative yield vehicles
among both retail and institutional investors. attract institutional interest in a high yield offer-
Why offer a preferred instrument in an MLP ingcan be an advantage in terms of flexibility.
when the underlying common unit already offers Also worth noting is the practice of the rating agen-
a healthy yield and, moreover, potential upside cies generally to consider a preferred of this type
from gradually rising distributions over time? as equity (50% equity by S&P; 100% by Moodys).
People tend to assume that the common units Relative to their respective debt yields, Van-
themselves should be adequate to satiate the retail guards latest preferred issuance and the subse-
investor demand, said Appel. But the preferred quent preferred deal by Legacy Reserves were
is not a proxy for the common units. The preferred priced at about 130 basis points and 140 basis
is a proxy for the underlying senior debt that the points, respectively, over levels prevailing for their
retail investor cant readily access. senior notes.
Appel cites several obstacles facing retail For an investor in an MLPs preferred issue, the
investors trying to transact in the corporate bond latters structural seniority to the common unit
market. Not only is the market not very transpar- typically offers a considerable margin of comfort.
ent, but it also trades in $1,000 increments with In the MLP space, its all about the distribution
extremely wide spreads. For the retail investor, and yield. MLPs will do anything they can to avoid
buying a debt instrument directly is very difficult. cutting the distribution, said Appel. And using the
By contrast, the preferred units offered by MLPs example of Vanguard, which pays out about $200
typically trade in $25 increments and, more like a million in distributions to common unit holders
stock, are relatively easily transacted and moni- annually, you cant pay out a penny of the com-
tored on an exchange. Importantly, it gives the mon unit distributions until the preferred distribu-
retail investor an ability to invest in what they view tions are paid. So you have a nice $200 million
as the debt of an MLP, observed Appel. insurance policy.
For issuers, preferreds have the advantage of pro- Why add the fixed-to-floating rate feature in
viding a less expensive cost of capital, while avoid- the Legacy Reserves preferred offering?
ing issues of dilution and pressure to grow Fixed-to-floating is there to provide protection
distributions on the common units. For example, in an increasing interest rate environment, Appel
both Vanguard and Legacy Reserves raised money stated. Generally, when you go from a fixed to
through preferred issues at yields that were floating, it serves to protect the underlying price of
approximately 80 basis points and 135 basis points the preferred, because it will eventually revert to
lower, respectively, than the yields on their respective being a floating instrument. Every three months its
common units at the time of issue. And with more going to reset. That means, all things being equal
than $175 billion of debt and equity issued by relative to spreads and credit quality, youre basi-
MLPs in the past three years, the preferred offers the cally protecting that $25 liquidation preference.
MLP CFO a new pool of capital to access. Appel recalls when the common wisdom was
As with Legacy Reserves, the possibility of issu- that the retail investor would show little interest in
ing a preferred to raise an amount smaller than a preferred. But with that demonstrably proven oth-
$250 millionthe size typically necessary to erwise, its definitely catching fire now, he said.
INVESTMENT BANKING
ROTH RAMPS UP
Roth Capital adds oil and gas to its
portfolio for investment banking.
By Leslie Haines
R
oth Capital Partners LLC, based in Newport
Beach, California, is undergoing a sort of ren-
aissance through its focus on small-cap Roth Capital Partners has had
growth companies, and more recently, its move into a the energy industry, with its huge
sixth industry vertical, the oil and gas sector. The other appetite for capital, on its radar
verticals include healthcare, business services, con- for several years, according to
sumer, industrial and clean tech and tech media. chairman and CEO Byron Roth.
Were just planting our flag, says Alexander
Montano, managing director, who joined last
October to lead the oil and gas franchise. a long time up the street from us and his Rolodex
Since Montano came on board, Roth Capital has a lot of people hes done business with
has been involved in secondary offerings for Dia- before. Now its about building out the team.
mondback Energy Inc. ($216 million in February At press time, a search was underway
2014) and Ring Energy Inc. ($57.5 million in for E&P research analysts to join
December 2013). Currently it is advising Hous- the company, which does have a
ton-based, privately held Yuma Energy Co. on its minerals and mining analyst,
pending merger with California-based Pyramid so natural resources are not
Oil Co. to in effect go public. an entirely new concept for
The move into oil and gas had been considered the firm.
for some time. We have a whole world of growth- We dont rank as high [in
stock investors as clients that have been seeking league tables] in total dollars
exposure into the energy space, said Byron Roth, raised as some other banks,
chairman and CEO. as our average deals tend to
Weve done a lot of deals with biotech and its be in the $25-million range,
interesting to me that biotech and oil and gas both but from a view of the markets
have very big appetites for capitaland in both standpoint, we tend to be one of
cases when they are successful, they need addi- the most active firms in the coun-
tional capital. This is something weve been think- try, said Roth.
ing about for a while and we definitely have had
this on our radar for a few years.
It was really more about finding the right
leader who understands oil and gas to lead
the energy group, and we feel Alex is that per-
son, added Roth. Hes been in the business

INVESTMENT BANKING
In 2013 the firm participated deals done and when were in deal mode, the
in 99 capital formation transac- entire firm kicks in to help.
tions (public and private) in its Roth completes an average of two or three deals
legacy industries, and led 45 per week, so that kind of bench strength and market
of those deals (45% of the intelligence about the state of the capital markets will
total), so on average two deals be useful for Montano as he continues to increase
a week. So far in 2014, the firm the firms presence in the oil and gas industry.
has participated in 49 capital Our sales force is touching base with the buyside
formation transactions and has so much, we generally know when the window is
led 20 (41% of the total). Now about to open or close, and this translates into
Alex Montano, oil and gas will be a greater value for our clients, added Montano.
Roth Capital part of that track record. Roth held its 26th annual small-cap conference
Partners Employing nearly 150 in March with more than 700 institutional
people, the firm has for 22 investors in attendance. The feedback I got from
years focused on finance, research, sales and trad- the 12 E&P companies that presented was very
ing around small and micro-cap companies. positive. They met so many new investors they
We have all of the infrastructure in place here; hadnt seen before, said Montano.
now we need to add an energy component, said Whats interesting to me is that Roth has been
Roth. You cant control the public markets and around a long time and does what it does very
which sector is going to be hot, but you can con- well. Weve gotten a strong response from Byron
trol what youre covering and add another vertical and his team. Weve talked to a lot of investors
to your offerings. Everyone here knows how to get who are interested in oil and gas.
CAPITAL STRUCTURES
IS AN MLP RIGHT FOR YOU?

The shale bonanza means energy has become structurally short capital.
By Greg Matlock
O
ver the past couple of years, a broader inter- through the public market. Similarly, in todays
est in yield-based investments, coupled with economic environment, they often face pressure
disparities between buyers and sellers from investors to evaluate the availability and ben-
on underlying asset values, has placed an increased efits of certain public market transactionshow-
emphasis on accessing public funds. ever, the decision to move forward (either as an
Market demand for public entrants has contin- MLP, a traditional publicly traded corporation, or
ued to gain momentum in the oil and gas space otherwise) isnt always simple. A thorough, objec-
(including the upstream sector), resulting in a tive evaluation is critical at this stage.
heightened interest in master limited partnerships
(MLPs) and C corporation IPOs (traditional and What is an MLP?
non-traditional, including the Up-C structure), as In its simplest form, an MLP is a publicly traded
well as other structures. The increasing popularity limited partnership, or a limited liability com-
of corporate and non-corporate IPOs in recent pany, that pairs the tax benefits of a partnership
years, particularly in the energy space, mirrors the with the fundraising ability and liquidity of a
rapid growth in domestic energy production. public company. MLPs typically consist of (a) a
With interest in public monetizations at an general partner, who manages the operations
all-time high, many company executives and of the partnership and often holds a small
board members are considering accessing capital percentage (e.g., between 0% and 2%) of the

CAPITAL STRUCTURES
of strategic reasons, most of which fall into one of

the following six categories:
1. Potentially lower cost of capital
THE MLP HAS A UNIQUE ROLE 2. Opportunity to create a strategic growth
IN TODAYS ENERGY platform (i.e., funding strategic growth via
MARKETPLACE, ESPECIALLY FOR an alternative source of acquisition capital)
3. Desire to improve valuation of the sponsor
E&P COMPANIES.
entity
4. Ability to set valuation for the sponsors
retained assets
outstanding partnership units and may own in- 5. Partial liquiditythe monetization of
centive distributions rights (IDRs), and (b) lim- certain assets
ited partners, who provide capital and hold most 6. Potential to access a different class of
of the ownership, but have limited influence over investors
the MLPs operations. For a variety of reasons discussed here, the deci-
MLPs do not pay U.S. federal income taxes; con- sion to form an upstream MLP is a complex one
versely, each partner includes its distributive share that requires thoughtful consideration and long-
of MLP income when computing its U.S. federal term strategic analysis.
income taxthus, MLPs avoid the double taxa-
tion generally applied to traditional corporations E&P public market transactions
and their shareholders. Overall in 2013, E&P equities exhibited solid per-
The primary results of this flow-through structure formance, and that trend is largely expected to
are often increased cash flow and a lower cost of cap- continue throughout 2014. Although a number of
ital for the MLP; however, in order to maintain that upstream MLPs are present in the market, many
single level of tax for federal income tax purposes, of the latest upstream IPOs have been C corpora-
there is a requirement that at least 90% of an MLPs tion IPOs, with a few using the Up-C structure. As
gross income must be qualifying incomethat is, discussed here, an increased disparity in private
derived from certain activities in natural transaction valuations versus the implied valuation
resources, real estate or commodities, among others. from public transactions has made accessing
In a traditional MLP, the MLP communicates to public funds for E&P companies an increasingly
its interest holders the intention to make minimum intriguing proposition.
quarterly distributions of cash (MQDs), the amount For E&P companies looking to go the MLP
of which plays into the MLPs yield and impacts the route, a number of specific factors must be consid-
point at which sponsors start receiving IDRs. ered, principally the need for steady, increasing
Conversely, upstream MLPs may choose to go cash flow over a long horizon.
the route of a variable pay MLP, whereby the As noted here, MLP investors expect stable, increas-
public is not promised an MQD and shares in the ing cash flows; however, companies engaged in E&P
upside (and downside) of operations; however, activities dont always have stable cash flows, espe-
under the variable pay MLP format, the sponsor cially in the midst of a drilling program or depending
would generally not receive any IDRs. While cer- on the duration of the field at play. Consequently,
tain upstream MLPs have chosen the variable pay E&P companies that do access capital markets using
structure, many upstream MLPs remain in the tra- an MLP typically have limited exploration activities
ditional MLP format. in very mature basins with long remaining reserve life,
and increasingly, ownership or investment in wells
Benefits of an MLP once the production rates have steadied.
Today, E&P companies (among a host of other Upstream MLP companies typically target low-
companies) are evaluating MLPs for a wide range cost operations (e.g., sponsor-operated properties
CAPITAL STRUCTURES
long-term strategy of continu-

Corporate IPO Structures Illustrated ous aggressive growth.
Traditional IPO Up-C MLP Consequently, the corpo-
rate IPO route typically pro-
vides management with
Sponsors Public Sponsors Public Sponsors Public additional flexibility with
Golden
Shares respect to retained earnings
PubCo
and reinvestment in core
MLP
properties. Similarly, publicly
IPO Co traded corporations are tradi-
Op Co
Opco
tionally valued on prospective
earnings growth (as opposed
Qualifying & Qualifying &
Non-qualifying Non-qualifying to a yield-based valuation).
Income Income Non-qualifying Qualifying
Income Income For these reasons, an MLP
Source: EY may not be preferred for an
asset package made up of
or cost-advantaged agreements) and have either mostly offshore U.S. properties.
significant properties with low decline curves or
enough assets (future drop-down assets) to stag- The Up-C structure
ger and smooth out production, taking into A number of recent upstream IPOs have been cor-
account the varying decline curves. porate IPOs, with a subset of such IPOs going
A high ratio of proved developed producing public in what is referred to as the Up-C structure.
(PDP) reserves to proved undeveloped (PUD) Although the nuances of the structure can be com-
reserves is common, as MLP investors are generally plex, the Up-C structure generally refers to a struc-
focused on the growth story and the reserve base ture whereby the sponsor and the publicly traded
(PUD base) to see if long-term stability is feasible. corporation own an interest in a lower-tier operat-
ing company that holds the assets.
MLP versus corporate IPO As the sponsor exchanges interests in the lower-
E&P companies, especially those focused in the tier operating company for public company stock,
shale basins, generally require a significant amount the public company receives a step-up in tax basis,
of capital to fund aggressive and complex drilling while passing on a portion of the future tax benefit
programs. Although there is no legal requirement of such step-up to the sponsor through a tax
for an MLP to distribute cash to its unitholders, receivable agreement. Due to the complexity of
there is generally a market requirement that MLPs reporting and administration, careful considera-
distribute all available cash to the unitholders. tion and planning is necessary to evaluate whether
Although there is some flexibility as to how the Up-C structure is appropriate.
available cash is defined for each specific MLP,
as a practical matter, they are typically not the pre- Why choose an MLP structure?
ferred vehicle for warehousing cash to fund future An MLP may be the right capital markets vehicle
drilling programs for this reason. for an E&P company, depending on the presence
As a result, a corporate IPO may be preferable in of the key factors described here. Principally, these
a variety of circumstances, namely the following: factors include the presence of a stable cash flow
The asset base lacks a significant amount of profile, and a solid growth story. The planning,
mature, long-lived, producing properties. modeling and timing considerations of the drop-
Significant exploration or capital expendi- downs become increasingly important in an
tures are planned or required. upstream MLP given the decline curves in certain
Company management does not have a basins (and certain areas within basins).

CAPITAL STRUCTURES
In order to fully understand the impact of an MLP offers a wealth of benefits to both sponsor com-
IPO (both on a stand-alone basis and compared to panies and individual investors, while providing a
a corporate IPO)and to properly anticipate and low-cost, alternative form of capital for expansion
prepare for the challenges involvedsenior manage- and growth. For certain E&P companies, an MLP
ment should undertake a thorough study that tests IPO can be an important step to unlocking current
assumptions (best and worst case scenarios, and value, as well as creating future value; however,
iterations in between), and validates approaches. careful planning is critical from a strategic and
Because of the wide range of options available implementation perspective.
to sponsor companies related to which assets are Greg Matlock is a senior manager in EYs Trans-
transferred to the MLP (and when), the analysis action Advisory Service--Transaction Tax practice,
should include detailed modeling of various tax, and has also served as the Tax Sector Resident for
valuation, and capital structure scenarios, as well EYs Global Oil and Gas Center. His practice focuses
as identification of a strategy for the ultimate on U.S. federal income tax planning and structuring
downside: how will you unwind or otherwise exit for business transactions, with particular emphasis
the MLP (or other vehicle) if changing conditions on oil and gas investments.
require it? How will you achieve growth in varying The views reflected in this article are the
economic environments? views of the author and do not necessarily
The MLP has a unique role in todays energy reflect the views of the global EY organization or
marketplace, especially for E&P companies. It its member firms.
FINDING CAPITAL
I = Investment banking;
C = Commercial banking;
M = Mezzanine;
P = Private equity/debt;
A DIRECTORY A = Advisor
Altira Group (P) Aventine Management Group

Dirk McDermott Andrew Shortreid
A 303-592-5500
dmcdermott@altiragroup.com
250-385-3333
info@aventine.ca
Amegy Bank of Texas (C) Avista Capital Holdings LP (P)

ABN AMRO Bank N.V. (I)
Steve Kennedy Steven Webster
Darrell Holley
713-235-8870 212-593-6900
972-543-6404
steve.kennedy@amegybank.com info@avistacap.com
darrell.holley@abnamro.com
Ammonite Capital Partners LP (A) Axiom Capital Management (I)

Acumen Capital Partners (I)
G. Warfield Hobbs Liam F. Dalton
Ian Thomson
203-972-1130 212-521-3800
403-571-0301
skiphobbs@ammoniteresources.com info@axiomcapital.com
ian@acumencapital.com
Apollo Management LP
Aegis Energy Advisors (A, I)
Garfield Miller
212-245-2552
Greg Beard
212-515-3200
gbeard@apollolp.com
B
glmiller@aegisenergy.com
R. W. Baird & Co. Inc. (I)
ARC Financial Corp. (P)
Aegon USA Investment Frank Murphy
Kevin Brown
Management LLC (P) 314-445-6532
403-292-0697
Andy Lennette fmurphy@rwbaird.com
kbrown@arcfinancial.com
319-355-2833
a.lennette@aegonusa.com Bank of America Merrill Lynch (C)
ArcLight Capital Partners (P)
Jim Mercurio
Daniel Revers
Aegon USA Investment 713-759-2520
617-531-6300
Management LLC (P) James.Mercurio@baml.com
drevers@arclightcapital.com
Matthew Willer
319-355-6422 Bank of Oklahoma (C)
ASYM Energy Investments LLC (P)
m.willer@aegonusa.com Mickey Coats
Greg White
918-588-6409
203-595-5600
Alerian Capital Management mcoats@bokf.com
gwhite@asymenergy.com
LLC (P)
Kenny Feng Bank of Ireland (C, I)
Associated Bank (C)
972-957-7700 Tony Dunne
Tim Brendel
kf@alerian.com 203-391-5900
713-588-8205
tony.dunne@boius.com
timothy.brendel@associatedbank.com
Alinda Capital Partners LLC (P)
Chris Beale Bank of Texas (C)
203-930-3801 Mike Delbridge
chris.beale@alinda.com 214-987-8816
mdelbridge@bokf.com
Bank of Tokyo Brean Capital LLC (A, I) The Carlyle Group LP (P, M)
Jamie Conn William McCluskey Rahul Culas
713-655-3814 212-702-6505 212-813-4564
jconn@us.mufg.jp wmccluskey@breancapital.com rahul.culas@carlyle.com
Bank of the West (C) Brittany Capital Group (A) Caymus Asset Management (A)
Todd Berryman Raymond Mendez Gregg A. Jacobson
303-202-5565 212-265-6046 281-203-5280
todd.berryman@bankofthewest.com rm@britcap.com gjacobson@caymus-capital.com
Barclays Capital (A, C, I, M, P) Brown Brothers Harriman (P) CC Natural Resource Partners (A, I)
Gregory Pipkin Jeffrey B. Meskin Michael L. Chiste
713-236-3954 212-493-8896 214-758-0300
gpipkin@barcap.com Jeffrey.Meskin@bbh.com mchiste@ccnrp.com
BB&T Capital Markets (C) Brycap Investments Inc. (P) CCMP Capital Advisors LLC (P)
Jeff Forbis Bryant Patton Christopher Behrens
713-797-2141 496-248-3081 212-600-9640
jforbis@bbandt.com bpatton@brycap.com christopher.behrens@ccmpcapital.com
BBVA Compass (C) BSI Energy Partners (M, P) Cerberus Capital Management LP
Dorothy Marchand Dustin Gaspari (I, P)
713-968-8272 303-800-5063 Kevin Genda
dorothy.marchand@bbvacompass.com dgaspari@bsienergypartners.com 212-891-2100
info@cerberuscapital.com
BC Capital Partners (A)
Bill Conboy
303-415-2290
bill@bccapitalpartners.com
C Chickasaw Capital Management
LLC (A)
Jim Johnstone
901-537-1866
Cadent Energy Partners (P)
Blackstone Energy Partners (P) jim.johnstone@chickasawcap.com
Paul G. McDermott
David Foley
713-651-9700
212-583-5832 CIT Corporate Finance, Energy
mcdermott@cadentenergy.com
foley@blackstone.com Mike Lorusso
212-771-6002
Canaccord Genuity (I)
BlueRock Energy Capital (M) Mike.Lorusso@cit.com
Chris Gibson
Allen Shook
713-331-9439
281-376-0111 ext. 303 Citigroup Global Markets (I)
cgibson@canaccord.com
ashook@bluerockenergycapital.com Stephen Trauber
713-579-5000
Capital One Energy Banking
BMO Capital Markets (I) steve.trauber@citi.com
(A, C, I)
Tod Benton
James McBride
713-546-9772 Clarus Securities (I)
713-435-5338
tod.benton@bmo.com John Jentz
james.mcbride@capitalone.com
416-343-2797
Bovaro Partners (A) jjentz@clarussecurities.com
Capital Solutions Bancorp (C)
Joe Valis
Carlos Weil
410-347-0817 Clearlake Capital Group (P)
800-499-6179
jvalis@bovaropartners.com Jos E. Feliciano
cweil@capitalsolutionsbancorp.com
310-400-8880
jose@clearlakecapital.com

Comerica Bank (C) Crestmark Bank (C) D&D Securities (I)
Mark Fuqua Steve Hansen Andy Gustajtis
214-462-4424 713-868-1350 416-363-0201
mfuqua@comerica.com shansen@crestmark.com info@dndsecurities.ca
Community Banks of Colorado (C) CSL Capital Management LLC (P) Donovan Capital LLC (A, P)
David Nelson John Griggs John W. Donovan Jr.
720-529-3379 281-407-0688 713-812-9887
dnelson@cobnks.com johng@cslenergy.com jwd@donovancap.com
Community Trust Bank (I) Duff & Phelps (I, A)

Christina Kitchens
214-252-2545
ckitchens@ctbonline.com
D Jim Rebello
713-986-9318
james.rebello@duffandphelps.com
Deerpath Capital Management

Conway MacKenzie (A)
R. Seth Bullock
713-650-0500
sbullock@conwaymackenzie.com
(I, M, P)
Tas Hasan
646-786-1010
E
thasan@deerpathcapital.com
East West Bank (C)
Copper Run Capital LLC
Denham Capital Management LP Esau Liu
Brett Filous
(P) 713-771-2828
614-364-7163
Carl Tricoli esau.liu@eastwestbank.com
brett@copperruncap.com
713-217-2700
carl.tricoli@denhamcapital.com EIG Global Energy Partners (M)
Corporate Development Capital (I)
Curt Taylor
Chris Mendrop
Denham Capital Management LP 713-615-7400
719-632-8341
(P) curt.taylor@eigpartners.com
cmendrop@cdcapital.bz
Jordan Marye
713-217-2700 EIV Capital Management (P)
Cowen Securities LLC (I)
jordan.marye@denhamcapital.com William R. Schriber
Matthew S. Rovelli
713-366-3639
212-920-2940
Deutsche Bank (C) investorrelations@eivcapital.com
Dan Ward
Credit Agricole Corp.
212-250-3915 Emerging Equities (A)
(A, C, I, M, P)
dan.ward@db.com James Hartwell
Dennis Petito
403-216-8201
713-890-8601
The Dillard Group of Texas LP (I) jhartwell@emergingequities.ca
dennis.petito@ca-cib.com
Max M. Dillard
281-873-6100 EnCap Flatrock Midstream
Credit Suisse Securities (USA) (I)
Mdillard@dillardanderson.com Bill Waldrip
Tim Perry
210-494-6777
713-890-1400
M. M. Dillon & Co. (C, I) mmarkham@encapinvestments.com
timothy.perry@credit-suisse.com
Carl A. Miller
203-569-6856 EnCap Investments LP (P)
Crestmark Bank (C)
cmiller@mmdillon.com David Miller
Melinda Fricke
214-599-0800
214-722-6446
DnB Bank (C) dmiller@encapinvestments.com
mfricke@crestmark.com
Kelton Glasscock
832-214-5800 EnCap Investments LP (P)
dnb.houston@dnb.no Murphy Markham
210-599-0800
mmarkham@encapinvestments.com
Encompass Capital Eschelon Energy Partners (A, P) Frost Bank (C)
Holt Calhoon Thomas Glanville Lane Dodds
646-351-8457 713-546-2621 713-388-7719
HCalhoon@encompasscap.com tsg@eschelonenergypartners.com Lane.dodds@frostbank.com
Enercana Capital Ltd. (P) Evercore Partners (I)

Barclay Hambrook
403-217-8777
finance@enercana.com
Jerry Smith
713-427-5147
jerry.smith@evercore.com
G
Energy Access Capital (P) Galway Group LP (A, I)
Jay Snodgrass
646-229-7448
jay@eafunds.com
F Hal Miller
713-952-0186
hmiller@galwaygroup.com
Farlie Turner & Co.

Energy Capital Partners (P) GasRock Capital LLC (M, P)
Erik Rudolph
Rahman DArgenio Scott Johnson
954-358-3800
973-671-6100 713-300-1400
erudolph@farlieturner.com
rdargenio@ecpartners.com sjohnson@gasrockcapital.com
FBR Capital Markets (I)

Energy Capital Solutions LP (I) GE Energy Financial Services (P)
Charles K. Thompson
J. Russell Weinberg Andy Katell
212-457-3315
214-219-8201 203-961-5773
cthompson@fbr.com
rweinberg@nrgcap.com andrew.katell@ge.com
FD Capital (A)
Energy Special Situations Fund (P) Global Energy Capital LP (P)
Simon Leathers
Tim Sullivant Russell Sherrill
+44-20-3463-5022
713-869-0077 713-993-7222
simon.leathers@fox-davies.com
tsullivant@essfunds.com russell@geclp.com
FD Capital Advisors (A)

Energy Spectrum Advisors (A, I) Global Hunter Securities LLC (I)
Jay Clark
Coy Gallatin Michael Bodino
404-573-4704
713-706-6382 817-502-1144
jclark@fdcapitaladvisors.com
Coy.gallatin@energyspectrum.com mbodino@ghsecurities.com
First Reserve
Energy Spectrum Capital (P) GMP Securities (I)
Edward T. Bialas
Jim P. Benson Harris Fricker
713-227-7890
214-987-6103 416-367-8600
ebialas@firstreserve.com
Jim.Benson@energyspectrum.com harrisf@gmpsecurities.com
FirstEnergy Capital Corp. (A, I)

Energy Trust Partners (P) Goldman Sachs (I)
John S. Chambers
Leland White Suhail A. Sikhtian
403-262-0664
214-987-6104 713-654-8400
jschambers@firstenergy.com
Leland.white@energyspectrum.com suhail.sikhtian@gs.com
Five States Energy Co. LLC (M, P)

Energy Ventures (P) Greenhill Capital Partners (I)
Gary Stone
Einar Gamman V. Frank Pottow
214-560-2584
281-768-6722 212-389-0600
gstone@fivestates.com
Einar.gamman@energyventures.no gcpinfo@gcpcapital.com
Fraser Mackenzie Ltd. (I)

Enstream Capital (A, I) GSO Capital Partners (M, P)
J.C. St-Amour
J. Daniel Mooney, CPA, CFA Tim Murray
416-682-4234
214-468-0900 713-358-1358
jc@frasermackenzie.com
dmooney@enstreamcapital.com Tim.Murray@gsocap.com

Guggenheim Partners (M, P) Hunt Energy Enterprises (P)
Mike Beman Victor Liu
713-300-1330
Mike.Beman@guggenheimpartners.com
214-978-8975
vliu@huntpower.com
J
GulfStar Group (P) Hunter Wise Financial Group (I)
Jefferies & Co. (I)
Cliff Atherton Fred Jager, President
Ralph Eads
713-300-2048 949-732-4100
281-774-2015
catherton@gulfstargroup.com fjager@hunterwise.com
reads@jefferies.com
H I Jefferies LLC (A, I)

Bill Marko
281-774-2068
wmarko@jefferies.com
Haddington Ventures LLC (P) IBERIABANK (C)
J. Chris Jones W. Bryan Chapman Jennings Capital Inc. (A)
713-532-7992 713-624-7731 Simion Candrea
cjones@hvllc.com bryan.chapman@iberiabank.com 403-292-0970
Harbor Light Capital Group LLC IFM Resources (A, I) Johnson Rice & Co. (I)
John Deeks Suresh Chugh Greg Miner
813-443-4923 609-252-9327 504-584-1232
jdeeks@harborlightcapital.com suresh@ifmresources.com gminer@jrco.com
Harwood Capital (P) Imperial Capital LLC (I) JPMorgan Securities (I)
Tom Swaney Thomas Pritchard Paschall Tosch
510-658-6398 202-664-3278 713-216-4395
tswaney@harwoodcapital.com tpritchard@imperialcapital.com paschall.tosch@jpmorgan.com
Haywood Capital Markets (A, I) ING Capital LLC (C, I) JPMorgan Securities (I, C)
Kevin Campbell Charles Hall Mike Lister
604-697-7103 713-403-2424 214-965-2891
kcampbell@haywood.com charles.hall@americas.ing.com mike.lister@jpmorgan.com
Highstar Capital (I) Intervale Capital (P)

Michael Miller
646-857-8700
Curtis Huff
713-961-0118
curtis@intervalecapital.com
K
HitecVision
Kayne Anderson Energy Funds (P)
John Smolen Invico Capital Corp. (P)
Danny Weingeist
713-360-2044 Douglas Pigot
713-493-2000
john.smolen@hitecvision.com 403-538-4771
dweingeist@kaynecapital.com
dpigot@invicocapital.com
HM Capital Partners (P)
Kenda Capital
William Jaudes Iroquois Capital Opportunity
Erik Vollebregt
214-740-7300 Fund LP (P)
713-623-5950
wjaudes@hmcapital.com Scot Cohen
erik.vollebregt@kendacapital.com
212-974-3070
Howard Weil (I) scohen@icofund.com
Kessey Capital Partners LLC (A)
Matthew P. LeCorgne
T. Prescott Kessey
504-582-2675
713-385-8245
mattl@howardweil.com
tpk@kesseycap.com
KeyBanc Capital Markets (A, C, I) Macquarie Capital Markets Municipal Energy Resources
Sylvia K. Barnes Canada Ltd. (I) Corp. (P)
713-221-3970 Dan Cristall Robert Murphy
sbarnes@key.com 403-218-6660 713-888-3300
dan.cristall@macquarie.com robert.murphy@munienergy.com
KRG Capital Partners (P)
Sarah Rickenbacker Macquarie Bank Ltd. (C, M, P) Mutual of Omaha Bank (C)
303-390-5009 Paul Beck Ed Fenk
srickenbacker@krgcapital.com 713-275-6201 713-634-7317
paul.beck@macquarie.com ed.fenk@mutualofomahabank.com
L Macquarie Tristone
Rob Bilger
713-651-4222
N
rob.bilger@macquarie.com
Ladenburg Thalman & Co. (I)
Jim Hansen National Bank Financial Markets
M1 Energy Capital Mgmt. (A)
713-353-8914 (I, P)
Rich Bernardy
jhansen@ladenburg.com Greg Thompson
713-300-1422
416-869-8562
rbernardy@mecapital.com
Lane Capital Markets (I) greg.thompson@nbc.ca
John Lane
Metalmark Capital LLC (P)
203-255-0341 Natixis Global Asset Management
Greg Myers
jdlane@lanecapitalmarkets.com (C, I)
212-823-1948
David Giunta
greg.myers@metalmarkcapital.com
Lazard Ltd. (A) (I) 713-759-9401
Bruce Bilger david.giunta@natixis.us
MGI Securities (A, I)
713-236-4600
Trevor Conway
bruce.bilger@lazard.com Natural Gas Partners (P)
403-705-4974
Tony Weber
tconway@mgisecurities.com
Leede Financial Markets (A) 972-432-1440
James Dale tweber@ngptrs.com
Midkiff & Stone Capital Group (I)
403-531-6800
Mick Midkiff
jdale@leedefinancial.com Neidiger, Tucker, Bruner Inc. (I)
713-667-2902
Anthony Petrelli
Lime Rock Partners (P) 303-825-1825
Mitchell Energy Advisors (A)
Townes Pressler Jr. tpetrelli@ntbinc.com
Michael W. Mitchell
713-292-9508
469-916-7480
tp@lrpartners.com NGP Capital Resources Co. (M, P)
alopez@mitchellenergypartners.com
Stephen K. Gardner
Lone Star Securities (A) 972-432-1440
Mitchell Energy Partners (A&I)
Renee Snell info@ngpcrc.com
Michael P. Taylor
972-701-8140
469-916-7482
rsnell@lonestarsecurities.com NGP Energy Capital Management (P)
mtaylor@mitchellenergypartners.com
Kenneth A. Hersh
972-432-1440
M MLV & Co. (I)

Bo McKenzie
832-319-2519
inquiries@ngpenergycapital.com
NGP Energy Technology Partners (P)

Philip J. Deutch
Mackie Research Capital Morgan Stanley Capital Partners (P)
202-536-3920
Corp. (I) John Moon
inquiries@ngpetp.com
Gage Jull 212-761-0591
416-860-7614 john.moon@morganstanley.com
gjull@mackieresearch.com

NGP Midstream & Resources LP (P) Pareto Securities Inc. (I) Plexus Capital (A)
John Raymond Trond Rokholt Wayne Williamson
713-579-5005 713-840-6305 303-225-5298
jraymond@ngpmr.com trond.rokholt@paretosec.com wwilliamson@plexuscapital.com
Nomura Bank (C) Parkman Whaling (A, I) PNC Business Credit (C, I, M)
Sam Kazdal Graham Whaling Jodi Giustina
713-821-4216 713-333-8400 888-838-6532
gwhaling@parkmanwhaling.com jodi.giustina@pnc.com
Northland Capital Markets
Adam B. Connors Parks Paton Hoepfl & Brown (I) Post Oak Energy Capital (P)
949-600-4152 W. Allen Parks Clint Wetmore
aconnors@northlandcapitalmarkets.com 713-621-8100 713-554-9404
aparks@pphb.com wetmore@postoakenergy.com
O Peters & Co. Ltd. (I)

Christopher Potter
403-261-2206
Premier Capital Ltd. (A)
J. W. Brown
214-808-3540
cpotter@petersco.com jbrown@precap.com
Oak Tree Capital (P)
Adam Pierce
Petrie Partners (I, P, A) Prospect Capital Corp. (M, P)
213-830-6308
Jon Hughes John Barry
clientinquiries@oaktreecapital.com
303-953-6768 212-448-1858
jon@petrie.com jbarry@prospectstreet.com
Oberon Securities (I)
J.W. Vitalone
Petro Capital Securities Prosperity Bank (C)
212-386-7053
Marvin Webb Joseph Massey
jw@oberonsecurities.com
214-572-0771 972-548-4000
marvin@petro-capital.com joseph.massey@prosperitybanktx.com
Octagon Capital Corp. (I)
Richard Goodman
PetroCap (P) Prudential Capital Group (P)
416-304-7845
John Sears Randall Kob
rgoodman@octagoncap.com
214-871-7967 214-720-6210
jrsears@petrocap.com randall.kob@prudential.com
One Stone Partners LLC (P)
Bob Israel
PetroCap (P) Prudential Capital Group (P)
212-702-8670
Alec Neville Brian N. Thomas
ri@onestone-llc.com
214-871-7967 214-720-6200
aneville@petrocap.com brian.thomas@prudential.com
Oppenheimer SteelPath MLP (P)
Gabriel Hammond
Pine Brook Road Partners (P)
214-740-6060
gh@alerian.com
Craig Jarchow
212-847-4325
cjarchow@pinebrookpartners.com
Q
P Platinum Partners Value
Arbitrage Fund LP (I)
Quantum Energy Partners (P)
Eric Nielsen
713-452-2050
Richard Geyser
enielsen@quantumep.com
Parallel Resource Partners 212-582-2222
John Howie rgeyser@platinumlp.com
Quintana Energy Partners (P)
713-283-9500
Loren Soetenga
parallelir@parallelresourcepartners.com
713-751-7527
loren@qeplp.com

Red Oak Capital Management (P) Royal Bank of Scotland (C)
Alan Moore Kevin Howard
R 972-644-7070
AMoore@redoakcapital.com
713-221-2400
kevinhoward@bankofscotlandusa.com
Regions Bank (C, I)

Raymond James | albrecht (A)
Chris Simon
713-278-5206
Kelly Elmore
713-693-5337
kelly.elmore@regions.com
S
chris.simon@raymondjames.com
Salida Capital LP (P)
Ridgewood Energy (P)
Raymond James | albrecht (A) (I) Brian Trenholm
Kenny Lang
Harrison Williams 416-849-2555
281-293-8488
713-917-3277 btrenholm@salidacapital.com
info@ridgewoodenergy.com
harrison.williams@raymondjames.com
Sandefer Capital Partners (P)
River Capital Partners LLC (A, P)
Raymond James | albrecht (I, A) Jeff Sandefer
Samuel P. McNeil Jr.
Howard House 512-495-9925
512-814-7411
713-278-5252 jsandefer@sandefer.com
smcneil@rc-advisors.com
howard.house@raymondjames.com
Sayer Energy Advisors (A)
Riverstone Holdings LLC (P)
RBC Capital Markets (A) Alan Tambosso
N. John Lancaster Jr.
Brian Atkins 403-266-6133
212-993-0076
713-403-5663 atambosso@sayeradvisors.com
john@riverstonellc.com
brian.atkins@rbccm.com
SCF Partners (P)
Rivington Capital Advisors (I)
RBC Capital Markets (C) Andrew Waite
Scott Logan
Joe Cunningham 713-227-7888
303-225-0900
713-403-5640 awaite@scfpartners.com
slogan@rivingtoncap.com
joe.cunningham@rbccm.com
Scotia Capital (I, C)
Rockland Capital Energy (M, P)
RBC Richardson Barr (I, A) Mark Ammerman
Scott Harlan
Scott Richardson 713-759-3441
832-585-0035
713-585-3332 mark_ammerman@scotiacapital.com
info@rocklandcapital.com
scott.richardson@rbccm.com
Scotia Bank (A, I)
Rock Ridge Energy LLC (A)
RBC Rundle (A) Adrian Goodisman
Lynn Bass
Tom Caldwell 713-437-5050
713-587-9912
403-299-8453 adrian_goodisman@scotia.com
lbass@rockridgeenergy.com
tom.r.caldwell@rbccm.com
SFC Energy Partners (M, P)
Roth Capital Partners
RB International Finance (USA) Mitch Solich
Alexander Montano
LLC (P) 303-893-5007
949-720-5770
Stephen Plauche msolich@sfcepartners.com
amontano@roth.com
713-904-3379
splauche@usafinance.rbinternational.com Siemens Financial Services
Roundrock Capital Partners (M)
(C, M, P)
Peter Vig
RBS Global Banking Markets (I) Kirk Edelman
214-661-3185
Phillip Ballard 800-327-4443
pvig@roundrockcapital.com
713-221-2400 kirk.edelman@siemens.com
phillip.ballard@rbs.com energyfinance.sfs@siemens.com
Simmons & Co. International (I) Sterne, Agee & Leach (I) Tejas Securities Group (A, I)
Jay Boudreaux Ryan Medo Craig Biddle
713-546-7325 205-949-3500 512-306-5281
jboudreaux@simmonsco-intl.com rmedo@sternagee.com cbiddle@tejassec.com
Societe General (C) Stifel Nicolaus & Co. (A, I, P) Tenaska Capital Management
Bet Hunter Christopher Shebby LLC (I)
713-759-6330 301-941-2407 Grant H. Davis
elizabeth.hunter@sgcib.com cshebby@stifel.com 402-691-9700
gdavis@tenaskacapital.com
Southwest Securities (I) Stonehenge Growth Capital LLC
Paul Moorman (M, P) Texas Capital Bank (C)
214-859-1800 Nemesio J. Viso Chris D. Cowan
pmoorman@swst.com 225-408-3256 214-932-6739
njviso@stonehengegc.com chris.cowan@texascapitalbank.com
Sovereign Bank (C)
John Lane Stonington Corp. (A) Tortoise Capital Resources (P)
713-821-5992 Bill Forster Dave Henriksen
jlane@banksov.com 212-551-3550 913-981-1020
wdf@wforster.com dhenriksen@tortoiseadvisors.com
Sprott Inc.
Scott Robertson Sumitomo Mitsui Bank (C, I) TPH Partners LLC (P)
416-945-3275 Jim Weinstein George McCormick
srobertson@sprottwealth.com 212-224-4120 713-333-7181
jweinstein@smbclf.com gmccormick@tphpartners.com
Standard Bank Americas (C, M, P)
Fernando Docters SunTrust Robinson Trilantic Capital Partners
212-407-5165 Humphrey (A, C, I, M, P) Chris Manning
fernando.docters@standardnewyork.com John Fields 212-607-8484
404-439-7449 christopher.manning@
Standard Chartered Bank (C) John.fields@suntrust.com trilanticpartners.com
Dan DeSnyder
713-877-9588 Triumph Securities (I, M, P)
Daniel.DeSnyder@hlc.sc.com
Stellar Energy Advisors (A)

T A.T. (Ted) Stautberg
212-850-2530
atstautberg@triumphsecurities.com
John McCallum
Tanglewood Investments (I, P)
+44-20-7493-1977 Tudor, Pickering, Holt & Co. (I, P)
Michael L. Tiner
mail@stellarlimited.com Bobby Tudor
713-629-5525
713-333-7100
mltiner@tanglewoodinv.com
Stellus Capital Management (P) btudor@TPHco.com
Todd A. Overbergen
TD Securities (C, I)
713-292-5402
toverbergen@stelluscapital.com
Stephens Group LLC, The (I)

Don Warmington
713-653-8202
donald.warmington@tdsecurities.com
U
K. Rick Turner
Tecton Energy LLC (P) UBS Investment Bank (I)
281-779-2290
Jack Schanck Tom Langford
rturner@stephensgroup.com
281-668-8068 713-331-8300
jschanck@tectonenergy.com tom.langford@ubs.com
Stephens Inc. (I)
Keith Behrens
214-258-2762
keith.behrens@stephens.com

UKB Capital Management LLC (A) Weisser, Johnson & Co. (I) Wright Capital Corp. (P)
John J. Mahar Scott W. Johnson Justin Wright
646-719-0252 713-659-4600 325-677-3516 ext. 107
jjmahar@ukbcapital.com sjohnson@weisserjohnson.com Justin@wrightcapital.biz
Union Bank (C) Wells Fargo (C) Wunderlich Securities (A, I)

Carl Stutzman Kyle Hranicky R. Kevin Andrews
214-992-4200 713-319-1980 713-403-3979
carl.stutzman@uboc.com kyle.hranicky@wellsfargo.com kandrews@wundernet.com
U.S. Bank (C) Wells Fargo Energy Capital (M) Wynnchurch Capital Ltd. (I)
Mark Thompson Mark Green Michael Teplitsky
303-585-4213 713-319-1327 847-604-6120
mark.thompson@usbank.com mark.m.green@wellsfargo.com mteplitsky@wynnchurch.com
West Coast Asset Management
V (M, P)
Atticus Lowe
805-653-5333
Y
alowe@wcam.com
Ventana Capital Advisors (A) Yorktown Partners LLC (P)
C. John Thompson Peter Leidel
Western National Bank (A, M)
713-666-7717 212-515-2113
Jack Herndon
circlet@pdq.net pleidel@yorktownenergy.com
432-570-4181
jackh@westernnb.com
Virage Energy Group (P) Yorkville Advisors (I)
Charlie Lepeyre Lester Garrett
Westlake Securities (I)
214-800-2087 201-985-8300
Randolph Ewing
cml@virageenergy.com lgarrett@yorkvilleadvisors.com
713-590-9690
randolph@westlakesecurities.com
Vulcan Capital Management (P) Young Capital Management (A)
Ford F. Graham Joshua Young
West Texas National Bank (C)
212-980-9520 310-737-8406
Sid Smith
fgraham@vulcancapital.com josh@youngcm.com
432-685-6520
ssmith@wtnb.com
W W. G. Nielsen & Co. (I)

Ron Barber
303-830-1515
Warburg Pincus LLC (P) rbarber@wgnielsen.com
Saurabh Agarwal
212-878-0600 Whitney Bank (C)
Donovan Broussard
Weidner Advisors (A) 713-951-7116
Bill Weidner donovan.broussard@whitneybank.com
860-413-2001
bill@weidneradvisors.com
To update or correct any entry, please contact Leslie Haines at lhaines@hartenergy.com.

Capital Formation

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HERES THE MONEY

CAPITAL FORMATION 2014

1616 S. Voss, Suite 1000

Corporate Art Director GOING IT ALONE...........................................................17

Graphic Designer CONFIDENCE BUILDS

Vice President and Group Publisher BULLISH ON BARRELS .....................................43

Director, Business Development FINDING CAPITAL: A DIRECTORY...............62

President and COO

Chief Executive Officer

Copyright 2014, Oil and Gas Investor

June 2014 | Heres The Money: Capital Formation 2014 | oilandgasinvestor.com 1

FIELDING GREAT TEAMS

For more articles and news on financing topics, see OilandGasInvestor.com.

PROVIDER an investment and advisory firm

NEWS Maguire Joins Carlyle

June 2014 | Heres The Money: Capital Formation 2014 | oilandgasinvestor.com 5

June 2014 | Heres The Money: Capital Formation 2014 | oilandgasinvestor.com 7

June 2014 | Heres The Money: Capital Formation 2014 | oilandgasinvestor.com 9

Investment Risk Spectrum

Production Risk Exploration Risk Commercialization

40% PREFERRED AND COMMON EQUITY

20% MEZZANINE/JUNIOR DEBT AND DEVELOPMENTAL DRILLING LOANS

10% STRETCH SENIOR/SECOND LIEN BANK AND INSTITUTIONAL LOANS

Producing Developed Not Producing Undeveloped Probable Possible

Source: Prudential Energy Finance Group

June 2014 | Heres The Money: Capital Formation 2014 | oilandgasinvestor.com 11

tremendously. However, the energy

Sr. Secured/ Cash Flow, Covenant Based Lending

Targeted returns typically in the mid-to-high teens Secured / Unsecured

Probable Non-Control Position

June 2014 | Heres The Money: Capital Formation 2014 | oilandgasinvestor.com 13

As with all private-equity firms, an exit strategy

FACTORS IMPACTING BORROWING BASE LOAN AMOUNT

Borrowing Base Decrease Borrowing Base Increase

Photo by Tom Fox

June 2014 | Heres The Money: Capital Formation 2014 | oilandgasinvestor.com 17

acquire and exploit, our team is heavily weighted

five-year time frame. Every asset has a maturity

June 2014 | Heres The Money: Capital Formation 2014 | oilandgasinvestor.com 19

pockets, sometimes spending the money is harder

By Chris Sheehan, CFA

June 2014 | Heres The Money: Capital Formation 2014 | oilandgasinvestor.com 23

of the Utica/Marcellus and the Permian. He also

June 2014 | Heres The Money: Capital Formation 2014 | oilandgasinvestor.com 25

has been very healthy; it is the public-to-public

Cummings cites Johnson Rices early understanding

FIXED INCOME FAVOR

By Chris Sheehan, CFA

June 2014 | Heres The Money: Capital Formation 2014 | oilandgasinvestor.com 31

from hard assets in the ground, and that has an Locking in

PRIVATE EQUITY DIVERSIFIES

June 2014 | Heres The Money: Capital Formation 2014 | oilandgasinvestor.com 35

ANRP closed on $1.3 billion of incoming com-

how much they spent on wells. That trend has

and then sell. Now, most buyers already have large

June 2014 | Heres The Money: Capital Formation 2014 | oilandgasinvestor.com 39

essarily have to be unconventional development

By Carl Goltermann and Adam Connors, Northland Securities

June 2014 | Heres The Money: Capital Formation 2014 | oilandgasinvestor.com 43

issuances in 2013 was by

Like debt, preferred

June 2014 | Heres The Money: Capital Formation 2014 | oilandgasinvestor.com 45

By Chris Sheehan, CFA

June 2014 | Heres The Money: Capital Formation 2014 | oilandgasinvestor.com 47