NGP-backed Teal Natural set to exploit energy downturn

  • Teal Natural Resources launches with $125 mln
  • New firm Pearl Energy is a backer of Teal
  • NGP funded Teal Natural from Fund XI

Teal Natural Resources sees plenty of opportunities to snap up high-quality assets in the Eagle Ford shale of Texas and other areas with equity checks in the $5 million to $50 million range. But the firm’s got the flexibility to do deals as large as $200 million, the newly formed company’s chief executive said.

The Dallas oil and natural gas exploration company launched with $62.5 million from NGP Natural Resources XI, the latest fund from Natural Gas Partners.

The firm drew another $62.5 million from Pearl Energy Investments LP, a new Dallas firm run by NGP veteran Billy Quinn and Chris Aulds, co-founder of Crosstex Energy Services as well as NGP-backed Teak Midstream.

While the initial commitment totals $125 million, Pearl and NGP have spare capital to support the perfect bigger deal, said John Roby, CEO of Teal.

“If we catch a tiger by the tail, our partners could extend the equity commitment,” Roby said.

Low prices = opportunities

Muted oil and gas prices are fostering good buying opportunities as established fossil-fuel producers shed properties to raise cash and refocus their businesses, he said.

“I see tremendous value in this price environment,” Roby said in a phone interview. “We can come in and buy non-core assets of publicly traded operating companies.”

Roby keeps a keen eye on areas in South Texas where it makes sense to drill wells even at current commodity prices, he said.

The current environment in the energy patch remains choppy, with low prices eating into the bottom lines of energy companies operating in a capital-intensive business.

Bigger companies have been focusing on their high-grade energy portfolios, which provide better returns to match drilling costs to cash flows.

Meanwhile, consolidation in the energy space has been lagging, partly because the gap between buyers’ and sellers’ expectations on prices has been widening.

But as reserves get formally marked down based on prices from the past 12 months, more deals are likely, Roby said.

Lower execution risk

While he expects oil prices to remain range-bound near the $40-a-barrel level for the foreseeable future, the U.S. energy patch has been seeing some price stability, which helps lower the execution risk around deals.

“We will see more volume and velocity of transactions,” he said. “It takes time for the bid-ask spread to narrow to a point where transactions can occur. And volatility in commodity pricing doesn’t help the situation.”

Prior to launching Teal Natural Resources, Roby worked as chief financial officer of Titanium Exploration Partners. He also spent several years as an engineer at Occidental Petroleum.

Other executives at the firm include Neil Basu, president and chief geologist at Teal, and a veteran of the Eagle Ford and Permian Basin regions at Pioneer Natural Resources; and John King, chief operating officer at Teal, who worked for a decade at Pioneer Natural Resources.

Teal is named for the green-winged teal bird, a fast-moving, nimble waterfowl.

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Logo of Teal Natural Resources courtesy of the company.