IndustryVoice: Capital Options—Lime Rock Partners – Oil and Gas Investor

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In 1998, Lime Rock Partners was founded by John Reynolds and Jonathan Farber while they were in their late twenties. Nineteen years later, Reynolds and Farber still lead the investment efforts alongside young leaders who have risen through the ranks of the firm.  In Lime Rock’s Houston office, managing directors Will Franklin, Greg Highberger, J. McLane, and Jeffrey Scofield lead efforts for deal sourcing and partnerships for U.S. E&P and oil-field services companies. All began at the firm as associates. Townes Pressler leads the effort to help portfolio company teams accelerate their growth.

What differentiates Lime Rock from other veteran North American E&P capital providers is its selectivity, creativity and partnership. “As we invest in both E&P and oilfield service, and also opportunistically outside North America, we are not seeking to back five new U.S. E&P teams every year,” McLane explained. “We usually back about one new team a year.” 

What is Lime Rock looking for? “There are already hundreds of private E&P teams chasing deals, most of them in a handful of counties,” McLane said. “We want to back teams that have a high chance of success. To us, that means three things: differentiated access to assets, a technical edge in developing them, and the appropriate strategy to remain more nimble than operators trying to put too much capital to work.” 

 This selectivity is enhanced by Lime Rock’s strategy to avoid putting teams in direct competition with each other—chasing the same type of asset in the same area at the same time.

Lime Rock’s current roster of E&P partners includes: CrownQuest Operating, which has partnered with Lime Rock for nearly 11 years in developing assets in the Midland Basin through the CrownRock and CrownRock Minerals vehicles; Prime Rock Resources in the Delaware Basin; San Jacinto Minerals I and II in the Marcellus and other basins; Arena Energy in the Gulf of Mexico Shelf; Capstone Natural Resources II, active on the Central Basin Platform; and Augustus Energy Partners II in the Rockies.

Lime Rock also stresses its creativity in putting deals together. “We are looking to help our investors and entrepreneurs achieve their goals,” Scofield said. “That means not stamping out deals from a template. Our last four E&P deals have been notable for their variety: a carve-out team of young entrepreneurs from a bigger E&P company; an overriding royalty interest purchase—alongside Lime Rock Resources—from a team we’ve worked with in the past; a new entity put together with existing partners that had developed and sold two assets in the same basin; and a second strategy developed by an existing team for which we raised a very large co-investment pool.”  

McLane added, “With so many of the best acreage positions identified and already locked up by well-capitalized companies, we suspect that multiple strategies or assets led by creative teams will likely be a large part of E&P investing going forward.”

Total capital commitments raised by Lime Rock have exceeded $7.5 billion, and the team has made 95 investments over the past two decades.

The team seeks to be an exception-al partner to its portfolio companies. “That begins with us and our companies,” Highberger said, “and with understanding where we can contribute—in financing, deal sourcing, exits, industry relationships, and helping our companies better understand the macro trends affecting the business. It also means trusting our teams in drilling and completion decisions.

“But the partnership isn’t just a two-way street. One of our great joys is to bring all of our E&P teams together to discuss their challenges and opportunities, and one of the most interesting parts of the job is to introduce our E&P teams to oilfield service companies in our portfolio and broader network with interesting technologies and perspectives.” 

Scofield added, “And we try to always have fun with the entrepreneurs we work with, because if you’re not looking forward to talking to your investment partner weekly—and daily during some periods—you’ve probably chosen the wrong source of capital.”

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