EnCap launches $2.5B energy fund drive

Oil and gas-focused energy buyout firm EnCap Investments has launched the fund-raising process for its eighth fund, targeting $2.5 billion, according to David Miller, co-founder of the firm.

PE Week had previously reported in late October that that the Houston-based buyout shop was preparing to launch fund-raising and was looking for a placement agent, though executives at the firm had not yet decided on a target. EnCap has since hired Park Hill Group, the placement agency owned by The Blackstone Group.

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.

Among the more than 160 limited partners in EnCap’s previous funds are 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 and the California State Teachers Retirement System, according to market researcher CapitalIQ.

EnCap has a unique investment model compared to typical buyout shops. Rather than investing in a target company all at once, the firm provides its equity capital to portfolio companies incrementally, typically over three to five years, almost like an equity line of credit.

Pine Brook Road Partners, a New York-based fund that targets energy and financial services, employs a similar strategy.

Separately, EnCap is currently wrapping up fund-raising for EnCap Energy Infrastructure Fund, which seeks to provide growth capital to companies involved with oil and natural gas gathering and processing, water handling and disposal, and carbon dioxide gathering and transportation. Firm executives were targeting $750 million for the fund and expect to close it at more than $600 million.

EnCap’s early funds have fared well, according to UTIMCO performance data as of Nov. 30. EnCap Energy Capital Fund III-B, a $492 million fund EnCap raised in 1997, has a 1.88x investment multiple and a 21.20% internal rate of return; and EnCap Energy Capital Fund IV-B, a $613 million fund raised in 2001, has a 1.65x investment multiple and a 50.79% IRR, according to UTIMCO.

EnCap invested in nine companies in 2008, according to its website, which did not list any activity in 2009. 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. —Bernard Vaughan