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Natural Gas Partners invests exclusively in the private equity of energy companies. Its partners began working together shortly after the firm's formation in 1988, providing a level of continuity and depth of experience seldom seen in the industry. NGP currently manages more than $900 million, mainly from sophisticated institutional partners. Through mid-1999, more than $560 million has been invested in 32 entities. The firm invests with only a few carefully selected companies each year, focusing on building companies with managements skilled in the acquisition and exploitation of producing oil and gas properties. In an interview, Kenneth Hersh and David Albin, co-managers of NGP, discussed the firm's overall investment strategy.
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Natural Gas Partners ("NGP") invests exclusively in the private equity of energy companies. Its partners began working together shortly after the firm's formation in 1988, providing a level of continuity and depth of experience seldom seen in the industry.
NGP currently manages more than $900 million, mainly from sophisticated institutional partners. Through mid-1999, more than $560 million has been invested in 32 entities. The firm invests with only a few carefully selected companies each year, focusing on building companies with managements skilled in the acquisition and exploitation of producing oil and gas properties.
NGP also seeks to invest in the oilfield service, gas gathering and other energy-related fields. NGP's particular strength lies in establishing relationships with relatively young companies, which often means funding at the start-up stage.
NGP usually invests from $10 million to $60 million and also is able to undertake larger corporate transactions to restructure or recapitalize the financial position of a company. NGP has structured more than $3 billion of capital investment.
INVESTMENT PROFILE
The partners of NGP have created a preeminent investment franchise in the energy business using a straightforward philosophy aimed at achieving perfect alignment of interests. NGP invests in the equity of quality energy companies and requires a meaningful investment by the company's management in the same security Using both its financial and industry network, NGP is then able to provide significant assistance to each portfolio company, enhancing the company's ability to seize opportunities. With interests properly aligned, there is only one route to enrichment for all parties: increasing the equity value of the enterprise.
Despite its name, NGP does not have any preference for companies with natural gas assets over those with oil, preferring to let the skills of its portfolio company management teams dictate the nature of the asset mix. However, NGP will not invest in a company where increasing oil and natural gas prices are needed in order to be successful. Moreover, the firm avoids investing in companies engaged primarily in exploration.
Instead, NGP believes that the better risk/reward opportunity is found in companies that buy assets and build upon them, gaining improved valuations by growing to large in size and sometimes by going public. Time and again, NGP has shown that traditional private equity returns common in other industries may be achieved by applying the same principles to energy, while avoiding the commodity and geologic risks.
CLIENT PROFILE
NGP emphasizes "owner-managers" as the keystones for each investment. Owner-managers display technical know-how and general business acumen that have produced both a record of past success and an idea for building a company.
NGP often finds owner-manager teams already in place in small, private companies, but it also has teamed up with employees of large companies looking to step out on their own. Beyond technical and business competence, though, NGP looks for people who are willing to invest much of their liquid net worth in the enterprise and devote all of their efforts to increasing the equity value of a single enterprise; able to demonstrate a unique and sustainable transaction flow; and are opportunistic sellers as well as buyers as business conditions fluctuate.
ANALYSIS CAPABILITIES
With nine investment professionals and more than 10 years of senior management working together, NGP is able to respond rapidly to investment proposals. David R. Albin and Kenneth A. Hersh co-manage NGP's investment efforts. Albin earned his BS in physics and MBA from Stanford University. He began his investment career at Goldman, Sachs & Co. and was a principle with Bass Investment LP before co-founding NGP Hersh received a BA in politics from Princeton University and became a member of the investment banking group of Morgan Stanley & Co. He joined NGP after obtaining his MBA from Stanford University
John S. Foster received his BA in political economy from Williams College and his MBA from NewYork University Before joining NGP, he was with CS First Boston Corp.'s fixed-income research department, focusing on natural resources.
R. Gamble Baldwin holds a BA in English from Princeton University. Before co-founding NGP with Albin, he was a managing director in CS First Boston Corp.'s equity research department where he was a perennial member of Institutional Investor's All-America Research Team.
Richard L. Covington received BBA and J.D. degrees from Southern Methodist University. Before joining NGP, he was a senior shareholder in the law firm of Thompson & Knight where he handled many of NGP's transactions.
William J. Quinn received a BSE in finance from the Wharton School of the University of Pennsylvania. He was a financial analyst with Bear Stearns & Co., Bankers Trust NA and NGP He rejoined NGP after earning his MBA from Stanford University.
CORPORATE SPOTLIGHT
Oil and Gas Investor editors spoke to Kenneth Hersh and David Albin, co-managers of NGP
Investor: Please explain your firm's overall investment strategy Albin: We use the same governing principles employed by private equity firms in other industries. That usually means that we own common stock in a company right alongside management, so we focus on building long-lived, trusting relationships with excellent people who are money makers. When you line up everyone's interest and unleash an owner to work in a field where there was once an employee, the impact can be dramatic.
Hersh: You can put a lot of capital into the energy industry, but you can easily take on an unwarranted amount of risk. We've thought about that a lot, and it has caused us to focus mainly on companies that acquire and exploit producing oil and gas properties. That's among the lowest risk business plans in the industry, but it permits the use of some debt to get equity returns to an attractive risk/reward ratio. In the buyout world it's known as a leveraged build-up strategy, and it works in the property acquisition and exploitation business.
Standing, from the left, R. Gamble Baldwin, Richard L Covington, William J Quinn and John S. Foster Sitting, Kenneth A. Hersh, left, and David R. Albin.
Investor: How does your firm differ from others that provide these types of investment services?
Hersh: There are only a handful of firms using the private equity approach in the energy sector, and each has carved out a definable niche. Our strengths include our success with start-ups when we sense that management has the right traits and a good deal flow.We also have developed a network of banks and other capital providers to support our companies' capital needs.With the energy capital markets all but closed for the last nine months, we helped three of our portfolio companies close on acquisitions that more than doubled their size by arranging for bank facilities.
Albin: The key people in NGP have worked together for 10 straight years. We have been through three commodity-price and capital-market cycles together, and we have started, built and sold numerous companies within those cycles.That gives us a lot of experience that our portfolio companies can draw on, and they do so at board meetings and in the many calls that go back and forth. For NGP to succeed at building long-term relationships, including some that span more than one investment cycle, we have to bring something to the table. To find out if we do, we tell prospective managements to ask our portfolio companies, and we give them their phone numbers.
CONTACT INFORMATION
Fort Worth
777 Main Street, Suite 2250
Fort Worth,Texas 76102
Phone: (817) 338-9235
Fax: (817) 8206650
Kenneth Hersh
Managing Director
Richard L. Covington
Principal
William J. Quinn
Principal
Santa Fe
100 North Guadalupe, Suite 205
Santa Fe, New Mexico 87501
Phone: (505) 983-8400
Fax: (505) 983-8120
David R.Albin
Managing Director
Greenwich
500 West Putnam Avenue
Fourth Floor
Greenwich, Connecticut 06830
Phone: (203) 629-2440
Fax: (203) 629-3334
R. Gamble Baldwin
Managing Director
John S. Foster
Managing Director
Copyright Hart Publications, Inc. Jul 1999