Private equity (PE) upstream investor Ridgewood Energy Corp. is partnering with a fund managed by Riverstone Holdings LLC to invest more than $550 million in a series of deepwater exploration projects in the Gulf of Mexico (GOM).

Ridgewood would oversee the investments on behalf of the venture. Combined with a similar commitment by an affiliate of Riverstone/Carlyle Global Energy and Power Fund IV LP in 2010, this brings the total Riverstone-sponsored fund commitment to the venture to more than $550 million.

The PE firms formed the GOM venture in 2010 and since then have participated in four discoveries in the Mississippi Canyon and Ewing Bank blocks of the deepwater GOM. The four discoveries all are being developed, with projected start-up dates in 2015 and early 2016.

Riverstone and Ridgewood have another seven exploration “opportunities” in the works, the first of which is to begin drilling this month.

Riverstone, which has more than $24 billion of PE capital across seven investment funds, targets all energy sectors, including exploration and production (E&P), midstream, oilfield services, power and renewables.

Last year, Riverstone and PE firm Apollo Global Management launched Talos Energy LLC, a Gulf Coast-focused E&P that operates primarily in shallow water (see NGI, April 9, 2012). Riverstone also helped to launch GOM explorer Phoenix Exploration Co. in 2006; the company later was bought by Apache Corp. (see NGI, April 24, 2006). In 2005 it partnered to fund the launch of deepwater explorer Cobalt International Energy Inc. (see NGI, Dec. 5, 2005).

Ridgewood Energy Funds’ forte is the GOM, where it has a stake in 29 oil and gas discoveries in the shallow and deepwater. In addition, the funds own interests in 70 federal and state lease blocks in the GOM, totaling more than 475 square miles.

PE investments, which more than doubled in the U.S. oil and natural gas sector from 2002 to 2012, are showing no signs of drying up, according to PwC. The consulting firm said in a recent report that PE growth is being driven by a recovery in credit availability and the diverging ratio in oil-to-gas prices, as well as the onshore renaissance that has moved from gas to oil.

PwC’s report focuses on the annual number of deals rather than deal values “since these can be skewed by outliers such as a $30 billion transaction in 2006 and $7 billion deals in 2011 and 2012.” Activity dropped during the financial crisis of 2008, but “the number and value of deals has been rising dramatically.”

“The current trends stand in stark contrast to the earlier part of the decade where activity was driven primarily by rising oil and natural gas commodity prices and a leverage bubble that burst in 2008,” researchers noted. “Over the next three to five years, we expect private equity to continue to increase. We expect ongoing major presence in the midstream and upstream sectors as they look to expand their footprint in the U.S. shale resource landscape. Energy-targeted funds have experienced record inflows recently and this capital will be deployed to various opportunities across the risk continuum.”

The oil and gas industry “requires a tremendous amount of capital, and this need only continues to grow,” noted the report. “The shale revolution is projected to require more than $5 trillion in investment over the next 20 years in the U.S. alone — largely directed to the upstream and midstream sectors.”

PE has moved in to take advantage of the demand for capital. Most important, however, “oil and gas investment opportunities fall along the entire risk continuum and cater to practically all profiles, strategies and appetites — everything from low-risk interstate transportation deals with fully contracted profiles, to high-risk high-reward commodity price plays.

The four major sectors of the industry, ranked from lower to higher risks, are midstream, oilfield services, downstream and upstream, according to PwC. The array of opportunities is “matched” by a complement of exit strategies.

“Initial public offerings (IPO) via a master limited partnership (MLP) structure, which are largely limited to the energy industry, have seen a resurgence in the last five years,” the report noted. Upstream MLP IPOs “have surged.” In addition, downstream MLPs are emerging.

Technology innovations also are driving PE activity to spur growth in the oilfield services sector, which in turn has driven activity into the exploration industry. There are “potential plays for every player,” said researchers. “Because of its disaggregated nature, oil and gas offers a uniquely broad range of businesses for potential investment along the entire value chain…”

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