Pegasus Resources LLC, a new mineral and royalty company devoted primarily to the Permian Basin and led by a team of veteran energy executives, has received a $300 million commitment from EnCap Investments LP.
On Monday, Fort Worth, TX-based Pegasus said its main focus is to acquire and manage properties "in the core of established and rapidly emerging resource plays," especially in the Permian.
Pegasus said the six members of the new management team collectively have nearly 150 years of experience, and have worked together at various companies for more than a decade. According to bios posted on the company's website, five of them previously worked for Collins and Young LLC (C&Y), a privately held exploration and production (E&P) company focused on the Permian, as well as the Barnett and Marcellus shales.
C&Y co-founder George M. Young Jr. is serving as CEO, while co-founder Ted Collins Jr. is nonexecutive adviser. Young previously was founding member and CEO at EnCap-backed Silverback Exploration LLC, where he and Collins currently serve as nonexecutive advisers.
"Our team has spent years working together and has a proven track record of successful collaboration and value creation," Young said. "Our plan is to leverage our extensive network of energy industry relationships, coupled with EnCap's financial strength and expertise, to assemble an attractive portfolio of high-return properties during an advantageous point in the price cycle.
"We have already seen a significant amount of deal flow and look forward to continuing to source, negotiate and close mineral acquisitions."
Young told NGI's Shale Daily that recent developments in drilling and completion techniques "have again made the Permian the most economic oil-prone basin in the United States, which has caused a lot of additional interest across the industry.
"After the downturn in the price of oil in late 2014, the Permian became a key area of focus for many operators due to the quality of the resource and the potential for multiple horizons. As a mineral buyer, the Permian Basin is a very compelling place to deploy capital at this point in the cycle due to the level of drilling activity and clear evidence of multiple stacked pay zones."
The executive team includes COO Will O. Rodgers, who previously served as vice president at both C&Y and Wolf Exploration LLC. Two additional C&Y veterans, Don H. Collins and Cass H. Rodgers, are to serve as vice presidents for land and operations, respectively. Both had worked in similar capacities at C&Y. CFO Lynn Frank previously served as finance director at Black Stone Minerals LP.
Young co-founded Silverback with five partners and a $350 million equity commitment from EnCap in November 2013. Three years later, Silverback sold its leasehold and upstream assets in West Texas to Centennial Resource Development Inc. for $885 million. Last July, the same management team founded a successor company, Silverback Exploration II LLC, with a $500 million investment from EnCap. At the time, EnCap's total commitment to the North American natural gas and oil sector totaled more than $10 billion.*
Young said there were no plans to take Pegasus public at this time.
"We have worked with members of the Pegasus team for many years," said EnCap managing partner David Miller. "They have a proven track record of value creation in the oil and gas business, and we look forward to continuing our successful partnership with them."
Pegasus said it is partnering with Fort Worth-based Tilden Capital LLC to help source and close mineral and royalty acquisitions across various basins. The law firm Kelly Hart & Hallman LLP acted as legal advisers to Pegasus, while Thompson & Knight LLP advised EnCap.
"Now may be a better time for entities such as Pegasus to focus their efforts on acquiring acreage in hot plays like the Permian, considering the new mantra among E&P companies is to be more focused on generating returns going forward," said NGI’s Patrick Rau, director of Strategy & Research. "Not that acreage in the Permian is any less desirable today than it was a few months ago, but if the focus is truly more on returns, then parties should be much more sensitive to the acquisition price of acreage and mineral interests than they were just a short time ago. Perhaps that will enable Pegasus to stretch that $300 million a bit farther."
Rau also thinks a few more properties may come on the market, given the renewed focus on returns in the upstream sector.
"Having Permian acreage has been something of a badge of honor for many exploration and production companies, kind of like having 'dot com' in the name of companies was 20 years ago. However, that badge may become expensive and a drain on shorter-term returns if companies do not plan to develop those properties in earnest over the next few years.
"A big driver to increasing returns on invested capital is for producers to focus and high grade their very best properties, no matter where they are. That could lead to a few more Permian holdings being available for sale than there were earlier in the year."
An analysis by 1Derrick last October found that E&P dealmaking slowed significantly during the third quarter, particularly in the Permian. But 1Derrick also found that private equity firms are confident for the near future, especially in the U.S. upstream.
*Correction: In the original article, it was incorrectly reported that EnCap Investments LP's total commitment to the North American natural gas and oil sector, as of last July, totaled $1 billion. The correct figure is more than $10 billion. NGI regrets the error.