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Merced Capital Targets Initial Investment of $50 Million in Its First Oil and Gas Venture

On July 23, 2015, Black Ridge Oil & Gas (ticker: ANFC), a Bakken/Three Forks E&P, announced a $50 million initial target investment from Merced Capital to form an entity that will acquire and develop Williston Basin non-operated assets.

Black Ridge will receive a management fee and reimbursement of third party expenses for managing the joint venture (JV) as well as the option to co-invest up to 25% on acquisitions and capital expenditures alongside the venture.  Investments made by the joint venture will be subject to Merced approval, however any such co-investments will reside directly within Black Ridge.

Ken DeCubellis, Black Ridge’s CEO, commented in the company’s press release that, “The partnership with Merced provides Black Ridge the opportunity to participate in the acquisition and development of additional assets at attractive valuations, with the potential to create significant returns for Black Ridge’s shareholders without dilution.”

anfc-structureWhen asked by Oil & Gas 360®about the potential to grow the JV, Ken DeCubellis said “If we are able to bring quality acquisition and development opportunities that meet or exceed our return thresholds, then we should be able to scale up the JV above the initial targets.”

It is interesting to note that on July 6, 2015, LINN Energy (ticker: LINE) signed definitive agreements with private capital investor Quantum Energy Partners who is planning to work together in a very similar fashion to Black Ridge and Merced to fund development of future acquired assets under a JV structure.

Merced Capital

Founded in 1988 as the first spinout from Cargill’s Financial Markets Department, Merced Capital is one of the pioneers in value-based alternative investments.  Since the firm’s inception more than two decades ago, Merced Capital has raised and managed numerous investment vehicles, including seven lock-up funds between 2005 and 2014 with aggregate committed capital of over $2.5 billion.

Black Ridge Oil & Gas Asset Location

Black Ridge Oil & Gas Asset Location

Black Ridge/Merced Entity

The capital committed to the Black Ridge JV is Merced’s first venture into to oil and gas development. So why do this deal with Black Ridge? DeCubellis explained, “Merced sees the quality of the assets that we have and are continuing to develop, as well as the detailed vetting and underwriting process used to make investment decisions.”

Black Ridge takes a returns driven approach to every investment that is made.  As a non-operator in the play, the company uses data on the 350 gross wells that they have working interests in to make selective capital allocation decisions and reduce investment risk across its portfolio. Black Ridge has been active in the Williston Basin since 2010 and participated in more than 230 gross wells.

The Teton project, operated by ConocoPhillips (ticker: COP), is the focus of ANFC’s 2015 development. The project includes 23 gross wells (1.76 net) and is expected to be the main driver of its increasing oil and gas volumes. The 600 MBOE type curve at Teton is among Black Ridge’s premier positions and will contribute to its 2015 volume guidance of 1,200 BOEPD – a year-over-year increase of approximately 50%.

The company outlined the following strategic advantages expected for Black Ridge:

  • Provides Black Ridge with the opportunity to participate in high return capital projects without diluting existing shareholders
  • Provides Black Ridge the potential to achieve significant equity returns with its share of the joint venture profits and the option to co-invest alongside the joint venture
  • Creates a long-term partnership with a private capital provider that is scalable and repeatable

In addition to these points, this JV allows Black Ridge to gain access to larger more scalable acquisition packages particularly given the current commodity price environment.

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