Published: August 29, 2023 |

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Kimmeridge Energy Management has amassed more than $1 billion to acquire and develop oil-and-gas assets, as other investors retreat from the sector.

The New York-based firm wrapped up Kimmeridge Fund VI LP with roughly 25 percent more capital than the $800 million it collected for a predecessor fund it closed in 2019, the firm said. The new fund is the largest Kimmeridge has raised since its inception in 2012.

Kimmeridge sees investment opportunities as a shortage of capital has depressed asset prices in the oil-and-gas sector, the firm said. Investors remain reluctant to back fossil fuel-related fund strategies over concerns about climate change and the terminal value of traditional-energy assets, according to industry consultants.

North American private-equity firms raised $2.37 billion across five oil and gas-focused funds during the first half of 2023, around one 10th of the $22.33 billion they collected across 15 funds in the same period last year, according to research provider Preqin. No such fund has closed with more than $1 billion so far this year, compared with five funds last year, Preqin’s data showed.

Like many other specialist energy investors, Kimmeridge did well in the years leading up to 2017 by aggregating largely undeveloped oil-and-gas fields in the Permian Basin, a large region covering portions of West Texas and southeastern New Mexico, and selling them to publicly traded energy companies. A lot has changed in the sector since then, as more public companies shifted their focus to increasing returns from a cash-burning strategy of growth at any cost.

Kimmeridge, which also has an activist fund strategy, has both agitated for changes in public energy companies and taken advantage of them. Civitas Resources, an oil-and-gas producer formed two years ago through the merger of a Kimmeridge portfolio company and another publicly traded peer, was one of Kimmeridge’s main investments from its previous flagship fund, according to a person familiar with the matter. The firm’s stake in the company was valued at roughly $990 million as of Tuesday, representing a gross return multiple of 4.6-times invested capital, the person said. As of April, Kimmeridge was Civitas’ second largest shareholder.

Kimmeridge is betting oil-and-gas assets can appreciate further as investors haven’t fully recognized how much producers’ performance has improved in recent years, Ben Dell, a Kimmeridge managing partner and co-founder, said in an interview about two and a half months ago.   

“If you continue to return cash to shareholders, you continue to improve corporate governance and environmental performance over time, that will get recognized. That’s where I think the industry is for the next stage,” Dell said.

He added that Kimmeridge is looking to expand its investments in natural gas-producing fields in areas such as South Texas’s Eagle Ford Shale. The firm is also considering investments in infrastructure to form a “more integrated domestic gas” business, he added.

“We’re strong believers that there’s a generational investment opportunity in natural gas and ideally delivering natural gas with [a net-zero] carbon footprint,” Dell said.

“We believe in the integration of the U.S. gas market into the global gas market — upstream assets being integrated into pipelines and liquefied-natural-gas infrastructure,” Dell added.

Source: The Wall Street Journal

Founded in 2012 by Ben Dell, Dr. Neil McMahon and Henry Makansi, Kimmeridge is an alternative asset manager focused on making direct investments in energy in the US. The firm is differentiated by its direct investment approach, deep technical knowledge, active portfolio management and proprietary research, and data gathering.

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