Like every arm’s length transaction, that of a private equity resource intends for the deal to provide more value than cost. As the name implies, most private equity folks intend to stay just that, private.
What does a private equity provider want? I was driving into the park from West Yellowstone at sunrise, when the light was near horizontal, I saw clouds of flies in the steam above the river. It occurred to me that when fly fishing you need to think like the fly, not like the fish. The fish knows how to do the fish thing.
While each investor has requirements and preferences that color their decision processes, there are some common themes. What they aren’t looking for is PUDs. What they are looking for is proven production that can be improved, but where capital availability is insufficient.
One of the private equity advisors I spoke with is Ken Honeyman, head of Blackline Resources in Atlanta. Ken, who hails from Calgary, started on the drill floor and worked his way to the C-suite. He advises a couple dozen investors on where to invest in the patch. What Ken brings to the table for his clients is deep understanding and a solid process for finding the kind of value opportunities his clients seek. He’s placed hundreds of millions of dollars, and even in this climate his clients are looking for good opportunities.
I asked Ken what he looks for, which led to a discussion of his process. He asks potential borrowers for a standard set of information, which includes location, production history, ownership information, etc. I recall coming through a border patrol checkpoint. They have serious technology, so the inspection officer already knows a lot before you get to the check point. The officer still asks the questions, not so much for the answers (of which they already have a sense) but to get a measure of the person in the driver’s seat. If it doesn’t feel right it gets busy up in there, and not in a good way. The same is true in Ken’s organization. If the information being provided isn’t complete or doesn’t track, or if the operator doesn’t, the deal is a no-go. The most important characteristic of the potential borrower/partner is ethical (I’ll have more to say on the ethical value proposition in my next post). If you can’t be trusted, it doesn’t matter how well the deal looks on paper.
According to Ken, although his clients invest in many different aspects and phases of the upstream market, their sweet spot is drilled wells which would benefit from rework, where the well is producing (or is capped), and of which the engineering analysis of the well log and production history indicates that the reworked decline curve will support the investment. Both the commodity prices and presumed political environment require a steady hand and a nose for sensing smoke in choosing where to invest. That’s what Ken brings to the table.
There’s PE money available for the right deals. If you’re looking for investment with Ken’s clients, reach out to me and I’ll make the introduction. I can be reached at firstname.lastname@example.org, or through our website at TexhomaLand.com.
@Ken.Honeyman @ BlacklineResources #PrivateEquity, @TexhomaLand