Carlyle and Riverstone Take Second Look At Gulf

Firms: The Carlyle Group and Riverstone Holdings

New Company: Phoenix Exploration Co.

Will Drill: 100 miles inland and out to sea along the

Gulf Coast

CEO: Bill Flores, who brings a team from recently

bought Gryphon Exploration

Strategy: Capitalize on buyers’ market as companies

looking for quicker growth rotate out of the Gulf

The Carlyle Group and Riverstone Holdings have wasted no time in making headlines after just raising $4.5 billion for two new funds.

Carlyle/Riverstone, the energy-focused partnership of the aforementioned firms, created a holding company to focus on new oil and gas exploration opportunities in the Gulf of Mexico. Phoenix Exploration Co. is headed by Bill Flores, formerly of the Warburg Pincus-backed Gryphon Exploration Company, a separate Gulf-centric exploration company that was acquired last August by Woodside Energy.

Flores left Gryphon after the company was sold and was later contacted by a few other team members that had departed and wanted to start up a new business. The team contacted a few private equity firms, one of which will likely give another big chunk of financing in the weeks to come, on top of what Carlyle/Riverstone has already committed. Phoenix is currently working with banks to secure a $300 million credit facility and the company could soon be overseeing up to $700 million in capital, said Flores.

At Gryphon, Flores had served as a senior vice president and CFO, where he executed M&A, hydrocarbon marketing and hedging activities. His resume also includes a stint as CFO at Western Atlas and CFO and COO positions at Marine Drilling Cos. Also on the Phoenix team are Stephen Heitzman, John Parker, Timothy Duncan and Keith Westmoreland, all of whom were part of the Gryphon team. Gryphon operated 95 of the 118 interests it had in leases in the Gulf, which were mainly on the continental shelf—the same area where Phoenix will be drilling.

The news about Phoenix comes on the heels of Carlyle/Riverstone’s announcement that it had raised $4.5 billion for two different funds. It raised $3.8 billion for Carlyle/Riverstone Global Energy and Power Fund III and another $685 million for Carlyle/Riverstone Renewable Energy Infrastructure Fund I. Already the Power and Energy Fund combined with Goldman Sachs Capital Partners have signed on to commit $500 million to a similar type of project—the formation of Cobalt International Energy LP, an oil and gas exploration company focused on the Gulf. That fund also agreed to purchase the natural gas storage business of EnCana Corp. for about $1.5 billion.

Flores noted there is a lot of capital in the business, but insisted, “We try to avoid getting overly ebullient about the state of the business and maintain a disciplined approach.”

One factor that is working for Flores and his team is that there is a steady stream of public companies rotating out of the Gulf today. The growth profile of the area’s assets is lower than what public companies traditionally covet. “At this point, there are probably more sellers than buyers,” Flores added.

As for the question of whether the Gulf will ever run dry Flores said, “There continue to be hydrocarbons available to discover, but the reserve size is getting smaller and they are harder to get to.”

Phoenix will be drilling anywhere from 10 to 20 exploration wells per year and will also grow via acquisitions. Its focus will be larger than that of Gryphon, and unlike Flores’ former charge, Phoenix will drill up to 100 miles inland. —M.C.