CORRECT: Warburg Backs Deep-Water Oil Explorer In Billion-Dollar Start-Up
May 22 2012 - 4:51PM
Dow Jones News
A group of investors led by Warburg Pincus LLC will pump as much
as $1.125 billion into a deep-water oil-and-gas exploration
start-up, continuing private equity's dive into the Gulf of
Mexico.
The funding, announced Tuesday, will seed Venari Resources
LLC--a company based in Dallas and Houston and run by Brian
Reinsborough, who previously led the U.S. unit of Canadian explorer
Nexen Inc. (NXY). Reinsborough joined Warburg last year as an
executive-in-residence.
The deal comes amid an uptick in interest from private-equity
firms in the Gulf of Mexico's energy fields, where Warburg has long
invested. Last month, Apollo Global Management LLC and Riverstone
Holdings LLC said they would spend up to $600 million on start-up
offshore explorer Talos Energy LLC.
Venari differs from many private-equity-backed Gulf explorers,
including Talos, in that it will focus on deep-water drilling, a
high-risk, high-reward business. Such wells are drilled miles
beneath the ocean's surface and can cost between $100 million and
$200 million apiece. The success rate for such wells hovers around
50%. But if the drilling hits its target, the well can yield
hundreds of millions of barrels of oil.
"Given the expected discovery sizes, we believe this is an
attractive opportunity to create a deep water exploration company,"
said In Seon Hwang, managing director at Warburg Pincus.
Given the low success rate, deep-water explorers need a huge war
chest so that they can withstand one or two dry holes--and can
adequately fund extraction if they hit a gusher.
Venari, Latin for hunt, plans to pursue sub-salt reservoirs,
pockets of oil and gas that, until the advent of modern seismic
imaging technology, had been obscured by layers or salt. The
company plans to buy minority stakes--typically 10% to 25%--in
exploration blocks and provide technological expertise to operating
partners, Reinsborough said in an interview.
Jolted by BP PLC's (BP, BP.LN) deadly Deepwater Horizon
disaster, which killed 11 rig workers and touched off the largest
offshore oil spill in U.S. history two years ago, the Gulf of
Mexico's deep waters are a fertile deal market, with plenty of
opportunities to buy into potentially lucrative prospects,
Reinsborough said.
"We feel the time is perfect to enter the deep-water Gulf of
Mexico," he said. "With the improved safety procedures and ramp-up
in activity the timing is great."
Venari marks Warburg's sixth investment in a Gulf of
Mexico-focused oil producer. It previously helped launch Newfield
Exploration Co. (NFX) and Spinnaker Exploration Co., which was
acquired by Norway's Norsk Hydro ASA (NHYDY, NHY.OS) in 2005 for
$2.6 billion and now is part of oil major Statoil ASA (STO).
Joining Warburg in the Venari venture are New York
private-equity firms Kelso & Co. and The Jordan Company and
Singapore's state investment firm Temasek Holdings.
-By Ryan Dezember, Dow Jones Newswires, 212-416-3057,
ryan.dezember@dowjones.com
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