Goldman/Carlyle Make Strong Bet On Energy Sector
DOW JONES NEWSWIRES
December 1, 2005 5:13 p.m.
HOUSTON -- In a sign of long-term bullishness for oil and gas prices, Carlyle/Riverstone and Goldman Sachs Capital Partners Thursday announced a $500 million investment into an exploration startup company.
The venture, Cobalt International Energy L.P., plans to develop high-risk, high-reward exploration prospects, partnering with established energy companies that would take the lead on project management and production operations once a discovery is made. Cobalt is led by former Unocal Corp. Chief Executive Joseph Bryant and former Mobil Corp. and Unocal general counsel Samuel Gillespie.
"We have a bullish outlook on the sector," said Kenneth Pontarelli, a managing director at Goldman, which made its $250 million investment from the firm's recently closed $8.5 billion GS Capital Partners Fund V.
The move marks one of the more significant forays by private equity firms into energy exploration and production and comes on the trail of others that have expanded into oil and gas development such as Quantum Energy Partners, Capital Partners LLC and Lime Rock Partners. "It has been increasingly hard to find large new deposits of oil and gas," said Pontarelli. "If you have very talented oil finders like the team we are backing, you can create a lot of value."
The investment comes at a time when persistently high prices have prompted leading energy companies to ramp up their exploration programs in a bid to meet their long-term development needs. Goldman and Carlyle have a similar view, even if the investment reward may be as long as five years from now.
"When commodity prices are high, we have a preference for investing in the sector by drilling and exploring," Pontarelli said. In lower-price environments, he said, Goldman's fund is more interested in buying companies already in the business.
`Ton Of Money'
Cobalt expects to develop new drilling prospects in the next 12-24 months in the deepwater Gulf of Mexico and elsewhere, with the first wells drilled towards the end of that period, said Bryant, who is chief executive of Cobalt. Most grassroots deepwater projects typically require five years or more of activity before yielding first production and a return on investment.
"This is a ton of money to throw at a grassroots exploration company," said Bryant in an interview. The lengthy gap between exploration and incoming cashflow discourages publicly-traded companies from investing in high-impact exploration, he said.
The Carlyle/Riverstone/Goldman deal differs from many private equity investments in energy, which tend to finance low-risk projects with reliable cash-flow, said analyst David Pursell. Part of Cobalt's appeal may be the relative lack of investor competition for riskier energy ventures, he said.
"It says there's a lot of money coming into the space and some of that money wants to take a little more risk," said Pursell, a principal at Pickering Energy Partners, a Houston research firm.
Bryant and a small management team that includes high-ranking former executives with BP Plc. (BP) and Unocal, plans in the coming months to acquire seismic data to identify prospects. The 2006 Gulf of Mexico lease sale is probably too soon, but Cobalt should be ready to participate in 2007, he said.
Cobalt will seek partners on exploration wells to spread the risk and up-front costs, which can cost $30-90 million or more in the deepwater Gulf. Bryant expects to take about a 50% share of a handful of prospects, rather than a smaller stake in a greater number of sites.
"My model is you only want to do things that are meaningful," Bryant said.
Goldman's private equity group has made other recent investments in the energy sector, including its purchase in June of Coffeyville Resources, an oil refinery in Kansas. In a transaction similar to the one announced Thursday, it backed a start-up natural gas exploration in 2002 called Bill Barret Corp. run by industry executives Goldman had known at their former firms.
Barrett is now a publicly traded company with a market value of about $1.3 billion. |
