FORT WORTH, Texas—Gene Shepherd, CEO of VTX Energy Partners, is on the hunt for $1 billion deals in the U.S. Lower 48 and the Permian Basin in particular.
But what the founder and former president and CEO of Brigham Resources LLC finds concerning as he wades back into the industry is that strong oil prices and formidable E&P returns haven’t pushed capital providers to open up their wallets.
“The degree to which the financial community has been willing to overlook what appeared to me be very attractive returns and … the practical needs of the growing global economy—that’s alarming,” Shepherd said at Hart Energy’s DUG Permian Basin and Eagle Ford Conference and Exhibition on May 18. “That’s a little bit alarming.”
VTX is backed by Vitol, a global commodities trading firm that trades about 7.6 million barrels of oil and other productions daily. Vitol, Shepherd said, had a long history of investing in physical assets that complement their trading activities. In February, they teamed with Shepherd to begin investing in upstream activities in the U.S. Lower 48.
Such firms may well end up being the alternative capital source the world needs, particularly after the industry has weathered downturns, a pandemic and is suffering through chronic underinvestment.
Shepherd said the lack of access to capital for E&Ps remains an impediment for a world that isn’t producing enough crude and natural gas to offset supply disruptions and geopolitical tensions in Europe.
Shepherd said the flight of capital from the space is among “the limiting factors that are restraining or keeping U.S. upstream from responding to the growing global demand for crude and natural gas.”
Vitol intends to “deploy several billion dollars of equity capital” into the Lower 48, without a particular disposition to commodity type or basin, although Shepherd said his preference is the Williston and Permian basins because of his experience there as an explorer.
“We are pretty open-minded obviously,” he said. “We have a lot of experience in the Permian and the Williston feels likes it’s a little more mature.”
VTX is intent on finding assets that have a large component of associated development and, “ideally, we’d like to be in a position to take over operations.”
“It’s really hard to buy something exclusively PDP,” he said. “The benefit of having a large development opportunity set is that you might not get the commodity price right but you certainly have the opportunity then to go in after the fact.”
If prices fall and service costs come down, that will give operators a chance to enhance a position’s economics.