Are EnerVest Investors at Risk?

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.

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Blum writes:

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.

E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.