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Mexico's First Independent E&P Secures $525M in Private Investments

Mexico's first independent exploration and production (E&P) company is securing its initial $525 million in funding with the help of private equity (PE) investors, including two big U.S. firms.

Sierra Oil & Gas S. de R.L. de C.V., headquartered in Mexico City, is being backed by energy PE units of Riverstone Holdings LLC and EnCap Investments, which each agreed to provide $225 million. Infraestructura Institucional (I2) Mexico's largest infrastructure PE firm, also committed $75 million.

Sierra is being led by Ivan Sandrea, who most recently was a senior partner at EY in London.

"The opening of Mexico's energy sector represents a transformational opportunity for the country," Sandrea said Thursday, the day of the announcement.

Mexico's energy sector in August was opened to private sector investment after legislation was signed by President Enrique Pena Nieto (see Daily GPI, Aug. 14; Aug. 7). Sierra's formation marks the first time in more than 70 years that Mexico would be explored for oil and gas solely by a private E&P.

"Mexico has a world-class petroleum system, a significant oil and gas industrial base, a new and modern oil and gas framework, professional institutions, professional human capital and is one of the most progressive economies in the world," Sandrea said.

"At Sierra, we have been preparing for this opportunity for several years, having assembled a unique team with outstanding commercial, technical and operational experience as well as the financial backing and expertise of some of the world's top energy investors and of Mexico's leading infrastructure fund."

The E&P plans to participate in development and production optimization opportunities made possible by Mexico's recent energy reforms. Additionally, the operator "may consider opportunities in hydrocarbon transportation, storage and processing," he said.

Riverstone Partner Jim Hackett, who had led Anadarko Petroleum Corp. until June 2013, said Sierra would be the PE's first investment in Mexico.

"We have been very impressed with the progress of the energy reform and look forward to contributing to the growth of a vibrant, private energy sector in the country, as we have done in the U.S., Canada and elsewhere," Hackett said.

EnCap Partner Jason DeLorenzo said the equity commitment "reflects the confidence that we have in Ivan and his team, as well as our belief in the potential for significant growth in Mexico's oil and gas sector."

All three investors retained the option to double their existing commitments once the initial equity is deployed.

"For us in I2, the investment in Sierra represents an important opportunity for Mexico's institutional capital, particularly the pension funds (Afores) that invest in our Development Capital Certificates, to help finance the development of the nascent Mexican private energy sector by participating in the exploration and production projects unlocked by the energy reform," said I2 Partner Juan Alberto Leautaud.

No additional details were provided by Sierra on the management team, nor on prospective portfolio plans.

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