Natural Gas Partners Fund Peaks At $600M –

Three months after formally announcing its intentions, Natural Gas Partners closed on its Natural Gas Partners VII fund. Originally targeted at $450 million, the Irving, Texas-based fund closed at $600 million, nearly double that of its previous fund, NGP VI, which closed with $370 million in 1999.

“Last July, when we looked at the deals we wanted to do, we figured NGP VI would not be enough, since it will be fully invested in a short time,” said John Foster, NGP’s chief financial officer, in describing why the firm chose to raise another fund so soon. “We have enough capital left for two or three more deals, and we plan to activate this fund by the third quarter of 2003.”

Since its founding in 1988, NGP has invested $935 million in 62 entities, and maintains a focus on oil and natural gas companies in Canada and the U.S. “More than 75% of our capital invested to date goes into companies that produce oil and natural gas,” said Foster. Approximately 80% of the capital is used in U.S. investments, and the remaining 20% is invested in Canadian companies.

Although NGP works in what is labeled the exploration and production segment of the business, NGP limits its exposure to the exploration side, since, as the old saying goes, “The best place to find oil is where there is oil,” meaning there isn’t a lot of exploration needed to extract oil and natural gas from U.S. sites since the deposits have been identified already. The companies NGP invests in retrieve oil and gas from Oklahoma, Texas, Wyoming, the Rockies and the Canadian basins, according to Foster.

“North America is a mature province for producing oil and natural gas,” said Foster. “Our models suggest that supply and demand in North America is pretty tight, and will stay tight.” The volatile oil and gas market can fluctuate wildly, due to supply and demand issues and, at the forefront today, geopolitical issues.

But while oil and gas commodities may be the most volatile sector an LBO shop can play in, NGP’s limited partner base appears to be steady. “We have more than 60 limited partners from previous funds, and more than 50 of them decided to invest in NGP VII,” said Foster.