EnCap eyes next oil and gas fund

Oil and gas-focused energy buyout firm EnCap Investments is planning to launch fund-raising for its eighth fund during the second half of 2010, focusing on raising money from sources outside the United States, David Miller told attendees at the Thomson Reuters Buyouts Texas Conference earlier this month.

Miller did not specify the size of the fund his firm was shooting for, but said it would be turning to placement agents to help tap overseas limited partners.

Houston-based EnCap focuses on upstream oil and gas opportunities in the United States.

The firm raised its $2.5 billion seventh fund in 2007, closing significantly more money than the $1.5 billion it had raised in 2006.

Limited partners in EnCap’s previous funds include the University of Texas Investment Management Co. (UTIMCO), the University of Virginia Investment Management Co., the Public Employees’ Retirement Fund of Indiana, the New Mexico Public Employees’ Retirement Association, the California State Teachers Retirement System (CalSTRS) and others, according to market researcher CapitalIQ.

The firm’s last two funds have yet to bring investors significant returns, according to data from CalSTRS. The state pension fund reported that it had contributed $84.1 million of its $150 million commitment to EnCap VI and had received distributions of $8.6 million and an IRR of 3.13% as of March 2009. It has contributed $65.6 million of its $250 million commitment to EnCap VII and received distributions of $3 million and an IRR of negative 22.6%, records show.

However, these funds are still young and these early results may not be an indication of the total returns investors are likely to see.

Older EnCap funds have done quite well. EnCap III-B, a $492 million vehicle raised in 1997, had cash-on-cash returns of 1.73X and an IRR of 19.3% in early 2007, according to records from UTIMCO.

EnCap had a busy 2008, investing in nine companies, according to its website. Recent EnCap investments include Shreveport, La.-based Ark-La-Tex Energy, which focuses on pulling more resources from existing wells; and Midland, Texas.-based Limestone Exploration, which works on upstream oil and gas opportunities in West Texas.

In addition to its primary exploration and production-focused oil and gas fund, EnCap is also working to raise a $750 million energy infrastructure fund to invest in companies that support oil and gas processing. The firm raised $350 million during the first quarter, including $15 million from the Texas Tech University System, according to reports..

Energy-related funds raised $3.1 billion in the third quarter, bringing the year-to-date tally to $6.3 billion.

Energy Capital Partners, a firm unrelated to EnCap, has raised $1.5 billion since December toward the $3.5 billion target for its second fund. The buyout fund, earmarked for investments in North American energy infrastructure, has raised pledges from CalSTRS (which pledged $100 million), the New York State Teachers’ Retirement System ($100 million) and the Illinois Teachers’ Retirement System ($50 million).

In late July, Kayne Anderson Capital Advisors closed Kayne Anderson Energy Fund V with commitments of $820 million. The initial target when the firm began fund-raising last summer was about $1.6 billion. LPs include the New Mexico Public Employees Retirement Association, San Diego County Employees Retirement Association and the University of Michigan.

Hudson Clean Energy Partners has collected more than $800 million from LPs and in May was fast approaching its $1 billion target for its debut fund. The firm focuses on late-stage investing in renewable power, alternative fuels, energy efficiency and storage. Danish pension fund ATP has committed up to $400 million and the Credit Suisse Group pledged at least $300 million.

White Deer Energy, a private equity firm with office in New York and Houston, has raised more than $300 million toward its goal of $750 million for its debut fund, according to a July regulatory filing. The Indiana Public Employees’ Retirement Fund recently pledged $50 million to the new fund. —Alexander Haislip and Nancy Gordon