EnCap Investments Closes $3.5 Billion Minerals Continuation Vehicle For Permian Basin Assets

EnCap Investments has closed a continuation vehicle with approximately $3.5 billion in capital commitments for EnCap Minerals and Rock River Minerals, giving the firm and its partners additional time to retain exposure to a large portfolio of Permian Basin mineral and royalty interests.

The vehicle is managed by EnCap and anchored by funds affiliated with Melange Capital Partners. EnCap said investor demand exceeded the amount required for the transaction, with participation from both existing investors and new institutional investors.

According to EnCap, the transaction represents the largest capital raise to date for a continuation vehicle focused on the upstream energy sector. It also provides existing investors with a liquidity option while allowing EnCap and participating investors to continue owning the assets and receiving exposure to their long-term cash flows.

The underlying portfolio was assembled through partnerships with Fortis Minerals, OGX Resources, Piedra Energy III, and Pegasus Resources. Pegasus continues to manage the assets.

The portfolio consists of approximately 134,000 net royalty acres of mineral and royalty interests in the core of the Permian Basin and currently generates net production of approximately 37,000 barrels of oil equivalent per day.

Activity across the acreage is supported by several major Permian operators. ExxonMobil, Diamondback Energy, Occidental, and ConocoPhillips collectively account for approximately 48% of activity across the portfolio, according to EnCap.

Unlike many operating energy assets, mineral and royalty interests generally do not require the mineral owner to fund drilling and development capital expenditures. EnCap highlighted that characteristic as part of the portfolio’s long-duration cash-flow profile and said the assets provide exposure to high-quality development inventory and operator economics in the Lower 48.

The continuation vehicle expands EnCap’s ability to hold the mineral portfolio beyond the typical life of the funds that initially acquired and developed the assets. The structure also creates a mechanism for investors seeking liquidity to exit while other investors maintain or establish exposure to the assets.

EnCap has been investing in the U.S. energy industry since 1988. The firm has raised 25 institutional investment funds totaling more than $47 billion and currently manages capital for more than 350 U.S. and international investors.

Evercore served as exclusive financial advisor to EnCap on the continuation vehicle, while Kirkland & Ellis served as EnCap’s legal counsel. Latham & Watkins advised Melange on the transaction.

KEY QUOTES:

“We are grateful to our limited partners for their continued support and for the opportunity to keep owning this exceptional asset well into the future. We have long held strong conviction in the Permian Basin, and we believe it will remain a critical economic engine for many years to come, particularly as industry innovation continues.”

“We also want to thank the Pegasus team and the other management teams who built this portfolio alongside EnCap and created tremendous value along the way. EnCap was an early mover in acquiring upstream minerals at scale, and we continue to execute that strategy today through our flagship institutional funds. We look forward to making this Continuation Vehicle a success for all investors.”

Doug Swanson, Managing Partner Of EnCap Investments