A reasonable response to ‘irrational’ sellers
Acquisition firm’s timing worked out before oil slump
ONSHORE oil and gas acquisition, development and production firm EnerVest experienced a major stroke of good timing against last year’s backdrop of falling oil prices.
EnerVest has sold off $1.6 billion of oil assets over the last year and a half, taking the company’s asset portfolio to 70 percent gas, 20 percent natural gas liquids and 10 percent oil.
CEO John B. Walker, who was formerly an oil and gas analyst in New York, said he would like to take credit for having the foresight to make those divestitures before oil prices started to fall. However, he says the decision was based on EnerVest’s view that oil assets were selling for prices that were too high, spurring the company to sell instead of buy prior to the drop.
“I’d like to tell you that I knew oil was going to drop from $100 to $40, but it was just that oil assets were so hot, and we were losing out on bids,” he said. “It was that light-bulb effect where sellers were being irrational about prices, so we decided to sell.”
Walker points to one situation where the company had acquired some oil assets for $320 million 18 months earlier, then sold them for $950 million. The firm raises money from investors, putting them into funds that each top out at a set amount. The funds, in turn, invest in oil and gas assets.
Armed with capital from asset sales plus equity in the company’s $2 billion Fund XIII, EnerVest made $3.1 billion gross and $2 billion net in acquisitions last year, primarily in the Anadarko Basin in western Oklahoma and the Texas Panhandle. It also did nearly $1 billion in divestitures.
Houston-based EnerVest has more than 29,000 wells in 15 states, 6 million acres under lease and $11 billion in assets under management. It was responsible for nearly 7 percent of the $60 billion in oil and gas assets bought and sold in the U.S. last year, the company said, citing RBC Richardson Barr, an affiliate of investment bank RBC Capital Markets.
It just closed its $3 billion Fund XIV and is set to begin making acquisitions through the fund this year. EnerVest’s Funds I-IX averaged a 36 percent return to investors, Walker said.
Walker said the company, which typically holds its assets for between four and nine years, plans to stick to its onshore-only investment strategy, with the idea of eventually returning closer to a 50-50 balance of oil and gas assets.
“We feel like we’ve done a really good job of investing in assets to deliver strong returns to our investors,” Walker said. “That’s one of the reasons why each fund is bigger than the next.”
EnerVest generated $1.6 billion in revenue last year, up from $1.5 billion in 2013. The company, which has 1,300 employees, 480 in Houston, came in at No. 8 on the Chronicle 100 list of top private companies, up from No. 11 last year.