Houston private equity firm EnerVest is working to salvage its energy hedge funds that plummeted in value from more than $2 billion during the oil boom to almost nothing after the bust.
EnerVest is brushing aside any concerns about its overall viability, arguing that selling oil and gas acreage in the coming weeks and months will alleviate most of the concerns of its lenders, avoiding a potential tug-of-war with Wells Fargo and other banks to take control of the embattled funds.
The issue is largely about making up for initiating multibillion-dollar funds five years ago when oil prices hovered near $100 a barrel and then having their values depleted during the subsequent bust, said Ron Whitemire, EnerVest senior vice president and chief administrative officer.
“We’re in active negotiations where we can divest assets, and that gets us back to close to compliance with the banks,” Whitmire said. “EnerVest is fine. We have two portfolio funds that are in need of repair, and we’re working on it. We’ve got to fix those and move on.”
The Wall Street Journal on Sunday highlighted the Houston fund’s rapid fall from grace during the oil bust, contending that EnerVest’s $2 billion fund started in 2012 is worth “essentially nothing” to its investors. Whitmire disputed that assertion, arguing that upcoming asset sales will create the necessary value to pay off much of its debt.
That may not alleviate the concerns of investors who have seen their financial bets largely disappear. Whitmire declined to comment on what EnerVest is telling its investors, citing confidentiality.
EnerVest is the rare private equity firm focused almost entirely on oil and gas exploration and production, having boomed in 2013 and 2014 during the days of $100 oil and suffering a massive deterioration during the 2016 bust. Current crude pricing of more than $46 a barrel hasn’t yet restored the industry’s faith.
Likewise, EnerVest’s publicly traded business, EV Energy Partners, has seen its stock value fall down to just 60 cents per unit, sinking below $1 in early June. EV Energy traded form more than $40 per unit as recently as August 2014.
Rather than speculating on future oil prices, EnerVest invests directly in the oil-and-gas-producing assets, said Pavel Molchanov, an energy analyst at Raymond James in Houston. The acreage, even if considered safe investments at the time, falls prey to the low oil price environment.
“The lesson for everyone is that excessive leverage in a commodity downcycle can be lethal. That’s what led to EnerVest’s meltdown. No big surprise there,” Molchanov added.
Still, Whitmire contends EnerVest is in a solid position overall because of its diversification, investing now in areas like South Texas’ Eagle Ford shale when everyone else is paying top dollar for assets in West Texas’ Permian Basin.
EnerVest’s most recent “Fund XIV” is doing well with almost $2.5 billion committed to it, he said, with the fixes needed for its XIII and XII funds. Likewise, EV Energy Partners partners with
EnerVest on some of its acquisitions, but EnerVest’s funds don’t invest in EV Energy.
Still, EV Energy warned investors in May it faces default risks in early 2018 if it can’t work out new deals with its lenders and its finances don’t improve.
This article first appeared on the Houston Chronicle – an Energy Voice content partner. For more click here.