Nov 22 (Reuters) – EnCap Investments is raising its
first private equity fund in five years dedicated to oil and gas
production, people familiar with the matter said, making it an
exception among U.S. buyout firms that have fled the oil patch
amid a scarcity of lucrative acreage and pressure from
Houston-based EnCap has approached investors in its previous
funds to gauge their interest in participating in the new
launch, the four sources said. It would be EnCap’s 12th flagship
fund and it could be officially marketed to investors early in
2023, the sources added.
A fundraising target has not yet been set, though the fund
is expected to be smaller than Energy Capital Fund XI, its
predecessor for which EnCap amassed $7 billion in 2017,
according to the sources.
The sources spoke on condition of anonymity to discuss
confidential information. Reuters was unable to identify
investors that EnCap is courting for the new fund. EnCap
declined to comment.
Many private equity investors have fallen out of love with
the oil and gas sector as easy-to-drill acreage is becoming
scarcer and more expensive for private equity firms. The
popularity of investing based on environmental, social and
corporate governance (ESG) principles that prioritizes the issue
of climate change has also made raising funds dedicated to
fossil fuels challenging.
What is more, some private equity firms suffered bruising
losses in the oil patch in the late 2010s when energy prices
were low, scaring some investors away for good.
Just $2.6 billion was raised last year for oil and
gas-focused private equity funds, compared to $20.2 billion in
2017, when EnCap raised its last flagship fund, according to
data provider PitchBook.
However, the energy supply crunch caused this year by
Russia’s war in Ukraine has buoyed the returns of investors that
stuck with fossil fuels. EnCap’s Energy Capital Fund XI was
valued at 1.42 times its money, equivalent to an 18.8% internal
rate of return, as of the end of June, according to the website
of the Oregon Public Employees Retirement Fund, one of the
EnCap has sought to attract ESG-minded investors through
EnCap Energy Transition Fund II, its second fund dedicated to
helping companies transition to clean energy for which it is
currently seeking $2 billion, according to a separate source.
EnCap is also raising its fifth fund for its pipeline
infrastructure affiliate, EnCap Flatrock Midstream, seeking $3
(Reporting by David French in New York; Additional Reporting by
Chibuike Oguh; Editing by Lincoln Feast)