GP Profile: Aethon Energy hopes to benefit from ‘unkind’ market

  • Year founded: 1990
  • Investment focus: Oil and gas
  • Key executives: Albert Huddleston, Gordon Huddleston, Matthew Marziani, Paul Sander
  • Headquarters: Dallas, Texas
  • AUM: $1.2 bln
  • Fundraising status: Closed Fund II on $240 mln in November
  • Website:

Oil prices are approaching 11-year lows and the price for natural gas has fallen by more than 30 percent since October. Traditional energy companies can no longer rely on high prices to buoy performance, and industry specialist Aethon Energy Management wants to be there to pick up the pieces.

“I believe 2016 is going to be reasonably unkind for a lot of companies, which will create a lot of significant opportunity,” said Aethon founder Albert Huddleston. “A lot of the people who were rushing into our business, making it look easy, sponsoring some spin-outs, [they will find] there’s still going to be music but very few chairs.”

Brent crude oil was trading at $37.60 per barrel as of December 17, more than $60 off its price in mid-2014. Natural gas prices also fell, dropping from $2.93 per million British thermal units (BTU) in July to $1.70 as of mid-December. Many firms did not underwrite oil and gas acquisitions for this type of pricing environment, which could result in a “real cleansing” as companies try to unload non-core assets in a volatile marketplace, Huddleston said.

Dallas-based Aethon recently closed its flagship fund in hopes of acquiring some of those assets as they become available. In November, Aethon II LP held a final close on $240 million, including co-investments, exceeding its target by 20 percent. The new fund will pursue investments in onshore oil and gas assets and has already completed two deals.

Despite having been in business for more than two decades, Aethon has raised just two funds since inception. The firm used team members’ family office capital to complete its early deals, Huddleston said.

“When we created this, we did everything from the alpha to the omega,” he said. “We did not want to outsource decision-making to third parties. We wanted it all internal. We were the operator — a strong operating team — and we were the private equity.”

Aethon raised an $84 million debut fund in 2002 and 2003 to acquire a large portfolio of Permian Basin and East Texas assets put up for sale by Kerr-McGee. Even though those assets were appealing — they fit the firm’s operational capabilities “to a T,” said Huddleston — Aethon still had reservations about taking on third-party capital.

“The question about bringing outside capital in was: Will that be a harmonious relationship? Will it change your ability to execute?” Huddleston said. “I’ll be honest, it took a few years to get comfortable with that concept.”

Aethon’s early deals were in traditional oil and gas assets. As the industry branched into unconventional strategies involving shale and horizontal drilling over the last decade, the firm deepened its bench to keep pace with the changing marketplace as it prepared to raise a new fund.

Before joining Aethon in 2013, COO Paul Sander oversaw natural gas operations throughout the southeast as a vice president at Encana Oil & Gas. Another partner, Matthew Marziani, worked at private equity and hedge fund Wexford Capital prior to joining the team the same year.

The addition of Sander, in particular, became critical to the completion of Fund II’s first investment. In May, Aethon partnered with growth equity firm RedBird Capital Partners to acquire approximately 188,000 acres of Wyoming property from Encana. Besides having worked for the seller, Sander also knew Hunter Carpenter at RedBird, which provided Aethon with the investment capital necessary to complete the deal.

“They had a long track record of success. They had a good operating team. I knew Paul [Sander], and I knew Paul was a good operator,” Carpenter told Buyouts. Terms of the acquisition were not disclosed.

Aethon partnered with RedBird a second time in July on a similar carve-out. The firms acquired 76,3000 acres of gas producing assets from SM Energy Company.

“There’s an industry bias for oil, and this combination of focusing on core assets, and focusing on oil, is leading companies to shed non-core assets,” Sander said. He added that Aethon’s operation team can dedicate more time and energy to extracting value from the non-core assets than their former parent companies. “We can get that upside for free.”

Photo: Seated: Albert Huddleston. Standing (L-R): Paul Sander, Gordon Huddleston and Matthew Marziani. Photo by Danny Turner for Aethon Energy