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Apollo, Warburg Taking More Bets on U.S. Onshore

Private equity (PE) money is continuing to flow into prospective Lower 48 operations, with two deals announced over the past few days that together are worth more than $1 billion.

PE giant Apollo Global Management LLC agreed this week to ante up to $700 million to partner with Zenergy Inc., a Tulsa-based producer. Zenergy is throwing in $55 million to help form new entity Zenergy LLC, which would acquire and operate properties in the Midcontinent, Texas and the Arkansas-Louisiana-Texas regions.

Zenergy got its start in 1980 by assembling, operating and then selling three businesses in North Dakota's Williston Basin's Bakken/Three Forks formations. In those ventures, Zenergy acquired more than 300,000 net acres and completed more than 250 horizontal wells. It also installed and operated 450-plus miles of produced water gathering systems.

Zenergy CEO Bob Zinke, who co-founded the company, said Apollo was "perfectly positioned to help us create a best-in-class entity to tap into the enormous opportunities" in the U.S. onshore.

Apollo Senior Managing Director Joshua Harris said recently the PE market has zeroed in on domestic unconventionals, which "has created literally over a $2 trillion capital need here in the U.S."

PE firms "have set themselves up with teams of scientists, landmen, reserve engineers and petroleum experts all over the be able take advantage of that opportunity and put a lot of capital to work," Harris said.

"In many cases, the midsized oil companies are not able to access the high-yield market because it's very complicated to figure out what their reserves are worth." Apollo "can use that same expertise to build a lending business where we can get actually quite nice returns."

On Thursday, Navitas Midstream Partners, based in The Woodlands near Houston, said Warburg Pincus LLC agreed to lead a PE investment for up to $500 million. A Warburg affiliate would be joined in the investments by members of Navitas management and other individuals.

Navitas wants to develop and operate midstream assets "across multiple basins" in North America. The new company has the pedigree to do it.

Navitas is led by R. Bruce Northcutt, who served as president/CEO of Copano Energy LLC until its $5 billion sale in 2013 to Kinder Morgan Energy Partners LP (see Daily GPI, Jan. 31, 2013). Partners Bryan W. Neskora and James E. Wade also were senior members of Copano management.

Neskora was Copano's COO and previously was an El Paso Corp. executive. Wade served as Copano's president and was COO of the Texas business unit. Northcutt, Neskora and Wade served as executives-in-residence at Warburg, "where they worked in close collaboration in the early stages" of the new company.

"We are delighted to have the support of Warburg Pincus to assist us in developing and growing the business," said Northcutt. "The firm's deep industry experience and patient capital provides us with a competitive advantage in today's midstream marketplace."

Warburg Managing Director In Seon Hwang said Navitas had a "best-in-class management team...With our producer-focused, long-term orientation to develop and operate assets, we believe Navitas is well-positioned to become a leading player in the North American midstream landscape."

Apollo had close to $159 billion in assets under management at the end of March. Apollo was part of a consortium of PEs that prepared the leveraged buyout of El Paso Corp.'s exploration and production business, now standalone EP Energy LLC (see Shale Daily, Jan. 17; Feb. 28, 2012). Apollo also has been involved in other significant U.S. energy deals over the past year, including one with Double Eagle Energy Holdings to buy properties in the Anadarko and Ardmore basins (see Shale Daily, April 30, 2013), and one to help create Whistler Energy II LLC, which operates in the Gulf of Mexico, (see Daily GPI, Aug. 20, 2013).

Warburg has more than $37 billion in assets under management. Notable energy investments include Antero Resources Corp., Bill Barrett Corp., Laredo Petroleum Inc., Newfield Exploration Co. and Targa Resources Partners LP.

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