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Five Questions with Glenn Jacobson, Partner, Trilantic Capital Partners

1 — Trilantic recently completed a $300 million investment in Indigo Minerals for natural gas assets in northwest Louisiana and east Texas. It’s been a tough environment for natural gas investors lately. Any reason you’re making this investment now?

We’ve been investors in the natural gas space for a long period of time. We think there is a really nice tailwind for demand of natural gas in this country, from a handful of areas. From the power-generation side, you see rolling retirements of coal plants [faced with] inabilities to meet emission standards switching to gas.

There’s also been a rebirth of petrochemical and plastics infrastructure, which pulls on natural gas, and ethane and propane as well. There’s a pretty interesting demand picture for natural gas in this country.

2 — It seems as though there’s been less deal activity in this region than in others. Is that the case?

There have actually been a few transactions of similar size. You do have five pretty chunky private-equity backed deals, three of which were done basically in the same parish in Louisiana as Indigo.

You don’t hear about it to the same extent as you do [deals in] the Permian Basin, I’ll give you that. We see a lot of value in this play; we see a lot of value in the management team. We’re excited about it.

3 — So why here? Why not the Permian Basin?

We do have investments in the Permian, and like there, there are multiple zones to drill. On top of the Cotton Valley and Haynesville [Texas], there are deeper places to drill like the Bossier Shale, as well as shallower zones. So it’s a prolific gas-bearing region.

The second factor is the completion methodology used to extract gas and liquids out of these rocks, out of these zones. It has improved materially. It’s not unique to this basin; you’ve seen this evolution in most other basins. It’s just the activity level has been a little more muted [in this region] over the last few years … and that’s changing the economics of extraction.

The third factor, which is critically important, is the location. A lot of areas of gas supply in this country are transportation- or infrastructure-constrained. Indigo, and obviously Cotton Valley and Haynesville more broadly, sits fairly proximal to the Gulf Coast, a lot of natural gas infrastructure and a lot of petrochemical infrastructure. So the differentials in price between the NYMEX price and here is pretty small.

4 — Natural gas prices remain very low, however. Is that a concern?

This was not a play in which we bought a lot of production in the hopes that gas prices would go up and that production would be more valuable. This is predicated on being able to drill more economically.

5 — The number of active natural gas rigs in the United States is way down from a year ago. Do you have a timeline in terms of how long it will take Indigo to develop these assets?

The short-term answer is we’ll have a rig on site quite soon and we already have a few wells drilled that are waiting to be completed. The longer-term answer is we have several decades worth of gas resources here. As we come up the production and cash-flow curve and look for an exit, one of the things we love about this play is — whether it be a sale to a strategic or a public market exit — we have enough inventory to make this asset attractive as a going concern, as opposed to just selling a small project to a different operator.

Edited and condensed by Sam Sutton

Photo of Glenn Jacobson courtesy Trilantic