5 Questions for Will Honeybourne

First Reserve Corp. managing director Will Honeybourne knows a few things about the energy industry. He’s worked in Texas for more than a quarter of a century and has been with the energy-focused private equity shop for eleven of those years.

At First Reserve, Honeybourne focuses on upstream oil and natural gas opportunities and services companies. He says that he has seen his fair share of ups and downs in the industry. Last month, Honeybourne was a panelist at Buyouts Texas, a conference affiliated with peHUB.

1: How has the credit crunch affected your business?

Honeybourne: We’re extremely conservative in the leverage we put on things. It’s not like we’re one of the more generalist buyout funds. We really want to spend our cash flow on growth.

2: What’s your take on the energy policies coming out of Washington, D.C.?

Mine is not to reason why, but to deal with the consequences of what takes place and try to make a good return to the limited partners whose money I manage.

We do talk about those developments and look at our investments in light of them. Whenever there’s something that happens, there are losers and there are winners. There are going to be some companies that benefit and others that are going to have problems.

3: Where do you see investment opportunities today?

If you look at our activity in North America, it’s mostly centered on natural gas. What’s happened to natural gas here is extraordinary. If you look back at the profile of U.S. gas production and go back quite a few years, we’ve been able to drill to keep up with depletion. The country’s production has been volatile but flat. However, recently it has increased.

4: What changed?

More drilling horizontally instead of vertically. It exposes a much longer length of the reservoir to the pipe bore. The combination of these two things means that we’re able to produce large, predictable gas drilling. It turns it into a manufacturing play in a way. You have large production coming on stream. It’s a huge success by the industry.

5: How have you worked with your portfolio companies during the downturn?

We had one company that kept hearing from its customers that they were going to maintain all their contracts for the coming year, but you just knew that something was going to happen here after having seen these cycles in the past.

So I said, ‘let’s do a hypothetical here where you lose 20% of your revenue overnight, what would you do?’ Management went to an offsite for a couple of days and came back with some suggested costs that they should be taking out. As the market started to get hit, this company was prepared.