The energy hedge funds of private equity firm EnerVest are said to be worth “essentially nothing” to its investors by the Wall Street Journal. But the firm’s senior vice president Ron Whitmire says that’s just not true. According to Houston Chronicle reporter Jordan Blum, 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 betting big on selling its oil and gas acreage to pay down debts and realign the funds’ balance sheets. It will also rely on renegotiating with lenders to help solve the funds’ problems.
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.
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