Reuters Exclusive: EnCap-Backed Cordillera Energy Explores Sale for More than $3B

(Reuters) – Privately owned oil and gas company Cordillera Energy Partners is exploring a sale and is hoping to bring in more than $3 billion, sources familiar with the matter said.

Cordillera, which is owned by private equity firm EnCap Investments LP and other investors, has around 213,000 acres and more than 400 operated wells in the Texas Panhandle and western Oklahoma, according to the company’s website.

EnCap has backed Cordillera’s management twice previously and has successfully sold the company’s assets both times. The company is led by George Solich, who was previously an executive at Apache Corp. and HS Resources.

The first Cordillera partnership was formed in 2000 and sold its assets for just under $250 million in 2003. The second Cordillera partnership sold its assets for around $1 billion of cash and stock in September 2008 to Forest Oil Corp., Merit Energy and Devon Energy Corp.

Cordillera, based in Greenwood Village, Colo., launched its current venture in March 2007 and says on its website that it is already planning to form its fourth enterprise.

Cordillera and EnCap could not be immediately reached for comment.

‘UNCONVENTIONAL’ BET

The company has touted itself as one of the early developers of the Granite Wash, a geological formation that holds tight gas trapped in its sands.

So-called unconventional resources like tight gas and North American shale fields have drawn strong interest from companies around the world looking to tap into the possibly lucrative fields.

Unconventional assets include shale rock fields that may hold vast amounts of oil and gas but are more expensive to tap than traditional energy reservoirs.

The process used to release the gas — known in the industry as “fracking” — has led to a backlash in some areas, where residents and environmentalists blame it for contaminating drinking water supplies and fouling streams and rivers.

Companies such as BP, Exxon Mobil and Chevron have bet billions of dollars on assets in these regions, hoping they will deliver the vast quantities of gas and oil they believe are trapped there.

Cordillera is not the only private oil and gas company on the market.

Sources told Reuters on Tuesday that Samson Investment Co. is considering a sale that could fetch up to $10 billion and has hired investment bank Jefferies Group Inc. to advise it on that process.

The company confirmed the sale process in the Tulsa World, telling the newspaper that it believes the current economy makes the likelihood of any significant transaction “very uncertain.”

ENCAP ON A ROLE

If the sale of Cordillera is successful, it will be yet another hit for EnCap, although it isn’t clear which EnCap fund (or funds) invested in the most recent Cordillera partnership.

Three EnCap funds backed by the University of Texas Management Co. (UTIMCO) have produced strong internal rates of return as of May 31, according to UTIMCO performance data obtained by peHUB.

UTIMCO invested $17.4 million in EnCap Energy Capital Fund IV-B, a $525 million fund raised in 2001. Fund IV-B has returned $29.5 million in cash and produced an IRR of 50.60 percent, making it the 6th best-performing fund out of 216 private equity and venture capital funds backed by UTIMCO, according topeHUB‘s analysis of  UTIMCO’s performance data.

UTIMCO also invested in EnCap Energy Capital Fund VII, a $2.5 billion fund raised in 2007. It put $70.3 million into fund VII, which has returned 24.4 million in cash and has an IRR of 16.89 percent.

Finally, UTIMCO invested $26.8 million in EnCap Energy Infrastructure Fund, a $791.6 million fund raised in 2008. That fund has returned $4.6 million in cash and has an IRR of 25.46 percent.

The strong performance of EnCap’s earlier funds created strong interest in its most recent fund, allowing it to raise its largest single fund to date. It raked in $3.5 billion in January for EnCap Energy Capital Fund VIII L.P., the 15th fund it has raised since 1988.

By Michael Erman, Reuters

Additional reporting by Lawrence Aragon for peHUB

(Photo of oil rig at sunset by ekipaj/Shutterstock)

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