Cash is Flowing into North American Oil and Gas Industry:  OAG360 Exclusive Interview with Ken Hersh

“We operate with a very wide and blank canvas.” – Ken Hersh, CEO, NGP Energy Capital Management

Ken Hersh, CEO and co-founder, NGP Energy Capital Management

Ken Hersh, CEO and co-founder, NGP Energy Capital Management

Raising capital to fund North American energy companies has been NGP Energy Capital Management’s bread and butter since Ken Hersh formed his firm’s first private capital energy fund in 1988. The initial fund, Natural Gas Partners, L.P., raised $100 million targeted for investment in oil and gas.

Today’s closing of NGP Natural Gas Partners XI L.P. puts in play NGP’s eleventh oil and gas focused fund since 1988. This brings the Irving, Texas-based private equity firm’s total cumulative committed capital under management to $16.5 billion.

NGP’s investment platform includes Natural Gas Partners, NGP Global Agribusiness Partners, and NGP Energy Technology Partners, L.P. NGP is a strategic partner of The Carlyle Group.

Oil & Gas 360® spoke by phone with Ken Hersh today about the firm’s investment philosophy, its 26 year success record capitalizing oil and gas companies, and how the NGP team targets opportunities.

OIL & GAS 360®:  What’s the investment focus for the new fund?

KEN HERSH:  It’s going to be the same investment focus we’ve always had: North American upstream, midstream and a little oilfield service, from a pure private equity focus. We invest private capital in operating companies who are acquiring and developing [oil and gas] assets in North America.

OIL & GAS 360®:  In this market who are you targeting, as far as size, management teams and people?

KEN HERSH:  We will do a deal as small as $20 million or as large as $500 million. We operate with a very wide and blank canvas. We look to align with entrepreneurial management teams who have a strong business plan, and we will go where they lead us. By that I mean that we don’t micromanage our portfolio companies. There is a very large opportunity before us and it’s only getting larger. We’ve got a track record—we’ve lived through cycles before and we know what to do in the different market phases.

OIL & GAS 360®:  Are you looking mainly at shale plays? Which basins are you targeting?

KEN HERSH:  We are active in the U.S. and Canada. Today we have investments all over North America. We look at all the basins, both countries.

OIL & GAS 360®:  In addition to the upstream sector, are you also looking at midstream opportunities, oil service and enhanced recovery technologies, for example?

KEN HERSH:  It’s company specific—we were the original investor in Energy Transfer Partners [ticker: ETP]. It’s driven by our operations teams. In our midstream investments, we’re either involved in the acquisition business or expansion, or occasionally a greenfield development in areas that we felt were underserved. Midstream represents about 10% to 15% of our capital. It’s all about finding good opportunities with a management team that can bring a project in on time and on budget. Our mantra today is “Back to the Basics.” North America has growth potential, development opportunity, high transferable value and a strong entrepreneurial culture. Our investment team at NGP is composed of more than 60 people—many of them measure their experience with us in decades, rather than years, so we’re pretty experienced at uncovering good opportunities.

OIL & GAS 360®:  What’s your view of the commodities price picture that we have today?

KEN HERSH:  We’re in a cyclical business, and we’ve lived through plenty of lows and highs. It doesn’t make the lows any more fun, but low prices cure low prices, like high prices cure high prices. We have to shrink supply and bring back demand for prices to come back. The question is time—how long will the trough last?

Our job is to stick to fundamentals. We don’t rely on commodities prices. Our 26 years of data prove that the returns we have generated are not correlated to commodity prices. Ours is a really pure approach: we look for great management teams, put capital behind them and let them create value.

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