NGP bets on ‘dramatic capital scarcity’ in energy as it raises $2.5bn Fund XIII

NGP Energy Capital Management is banking on less competition in oil and gas investing to help sell its 13^th flagship offering to LPs.

In a June presentation to Boston Retirement System, NGP pointed to a “dramatic capital scarcity across the energy industry” as a key factor in what it calls “one of the most favorable energy investment environments in decades.”

This “scarcity,” the BRS presentation suggested, is due in part to a drop in private equity capital available for oil and gas investing. Drawing on several data sources, the firm estimates dedicated dry powder totaled $24 billion last year, down 73 percent from $88 billion in 2015.

Dry powder has been eaten away by a sharp decline in fundraising, as multiple challenges rocked the global oil and gas industry. Many LPs also stepped back from the strategy due to eroded performance as well as ESG and sustainability concerns.

Global fundraising in 2022 was the slowest in more than a decade, with 55 vehicles securing $20 billion, according to Buyouts data. In contrast, in 2017 – fundraising’s recent high-water mark – 96 vehicles collected $73 billion.

Interestingly, 2021 saw a fundraising uptick, with $65 billion going to 45 vehicles. This almost certainly owes to renewed interest in the strategy thanks to the oil and gas industry’s improved fortunes since 2020. After bottoming out during the pandemic, prices rose with increasing consumer demand and tighter supply.

Like NGP, other energy private equity specialists welcomed the fresh opportunity set. “This is our 25th year in business and the last time we saw opportunities with the same kind of risk-adjusted returns were back in the late 1990s to 2001,” Wil VanLoh, CEO of Quantum Energy Partners, told PE Hub last year.

Fund XIII

NGP Natural Resources XIII was unveiled in late 2022. Targeted to bring in $2.5 billion, it is expected to hold a next closing in July, the BRS presentation said. The flagship is likely to maintain NGP’s strategy of investing in upstream oil and gas in North America with an opportunistic focus on midstream assets and oilfield services.

Another of the fund’s selling points, the BRS presentation noted, is the firm’s record of steady distributions driven by a mix of dividends and exits. The 2017-vintage NGP Natural Resources XII was as of March earning a gross IRR of 21 percent and a net IRR of 15 percent.

This week, a new liquidity event appeared to be in the offing. Civitas Resources said it agreed to buy oil and gas operations in the Permian basin managed by NGP for $4.7 billion.

Founded in 1988, NGP invests across the energy ecosystem and – like many of its peers – has recently given emphasis to climate strategies. Earlier in June, it announced the close of NGP Energy Transition IV at $700 million to invest in renewables, electrification, energy efficiency and the reduction of carbon emissions.

The Dallas firm is led by managing partner Chris Carter, who joined in 2004. A second managing partner, Tony Webber, left in December and is now with Dais Partners, according to his LinkedIn profile.

Carlyle formed a partnership with NGP in 2012, acquiring a 47.5 percent revenue interest.

NGP did not respond to a request for comment on this story.