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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, [email protected]