EnCap ready to exit as OPEC pledges to slash output

EnCap Investments Managing Partner Murphy Markham sees strong opportunities for sellers now that OPEC has decided to cut its oil production by roughly 3.6 percent.

On Wednesday, OPEC agreed to slash output by 1.2 million barrels a day to 32.5 million barrels. Rumors of the agreement and its eventual announcement contributed to an immediate short-term increase in oil prices.

“That’s great,” Markham told Buyouts after delivering a keynote at the PartnerConnect Southwest conference in Dallas. “The flipside is we’re going to invest more in a down market.”

U.S. production soared in recent years as exploration companies deployed more advanced and efficient drilling techniques. The surge resulted in output outpacing global demand. After selling for north of $110 a barrel in mid-2014, Brent crude prices dropped well below $40 in early 2016.

EnCap, which specializes in oil and gas investments, kept active as a buyer as oil prices fell. The firm invested roughly $3 billion over the previous two years, Markham said in his keynote. EnCap closed its most recent flagship fund on $6.5 billion in 2015.

EnCap’s strategy involves committing fund capital to management companies to find assets for the firm to acquire. The management firms then draw down the commitments. EnCap committed roughly 85 percent of the fund to management teams but has deployed only about 35 percent of that capital, Markham said.

If oil prices continue to climb after the OPEC agreement, EnCap will be well-positioned to unload assets to publicly traded oil and gas companies looking to expand their holdings, Markham said.

“These public entities are really focused on trying to get an asset base,” Markham said during his keynote. “In this market, the publics are willing to pay a high premium for the acreage, and we’re not willing to. We’re in the business of making money.”

EnCap was founded in 1988 and has invested in more than 220 oil and gas companies since it started up. The firm has offices in Dallas, Houston, Oklahoma City and San Antonio.

Action Item: More about EnCap: www.encapinvestments.com

A Canadian Natural Resources pump jack pumps oil out of the ground. Photo courtesy Reuters/Todd Korol