“This acquisition exemplifies BlackGold’s strategy of investing in asset-heavy, cash-flowing assets”Tweet this

BlackGold will receive a percentage of revenue from oil and gas production in this growing basin, free of operating expenses and capital expenditures. 72% of the net royalty acres (NRAs) in the portfolio are leased by operators in the top quartile of active horizontal rig counts in the Midland Basin, and 99% of the NRAs are leased by operators in the top half.

“This acquisition exemplifies BlackGold’s strategy of investing in asset-heavy, cash-flowing assets,” said Adam Flikerski, co-founder of BlackGold.

Erik Dybesland, co-founder of BlackGold, added, “BlackGold continues to acquire mineral and royalty interests in the core of low-cost basins under best-in-class operators.”

BlackGold Capital Management, founded in 2006, has invested over $8 billion since inception, across upstream, midstream, and oilfield services companies. In the past 12 months, BlackGold completed acquisitions of mineral and royalty interests totaling approximately $150 million.

About BlackGold

BlackGold Capital Management LP is a Houston-based private investment firm focused on asset-heavy, cash-flowing investments in the energy industry. Founded in 2006 by Erik Dybesland and Adam Flikerski, BlackGold seeks to generate compelling returns for its investors by employing a deep fundamental research-driven approach in analyzing energy assets and capital structures. The firm’s team has decades of experience in finance and operations, expertise in energy, and extensive long-standing industry relationships. KKR & Co. Inc., a global investment firm that manages investments across multiple asset classes, holds a 24.9% passive minority interest in BlackGold. For more information, please visit www.BlackGoldCap.com.

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About 500 miles east, Houston is abuzz about another slump on the way. Restructuring expert Jay Haber, for one, has been fielding call after call from New York with banks, hedge funds and private equity sponsors having to decide whether to sink more money into souring wells or cut their losses.

“People were far too quick to save basically broke companies in 2015 and 2016,” said Haber, a Houston-based adviser at turnaround shop Getzler Henrich & Associates LLC and 30-year veteran of the energy business. “Had oil gone to $80 or $90, things would be better.”

Money managers who specialize in distressed assets followed time-tested turnaround strategies in the Permian Basin, but for many of them, it’s not working. Instead, oil and gas bankruptcies this year are coming at the fastest clip since 2016, according to data from the Haynes & Boone LLP law firm. “Chapter 22s,” or repeat filings by the same company, are also on the rise as capital markets have slammed shut for troubled energy companies.

Energy investing is an inherently volatile exercise, with the fate of companies and investments largely determined by commodity markets and the global economy. When the price of crude dropped from 2014 to 2016 to the lowest in a decade, more than $130 billion of private capital was raised to bargain hunt for energy investments whose value would rise when oil rebounded, according to Preqin.

For those still solvent, oil remains stuck around $55 a barrel — too low for weak companies to make money. The outlook isn’t great either as the U.S. and China trade barbs over tariffs and predictions of a U.S. recession multiply.

Outside Money

Local bankers and investors in Texas who have built careers in “the patch” say the stress stems not only from the flagging price of oil, but also from outside investors who didn’t understand the game.

“We’d never heard of many of these people,” said Lance Gurley, a restructuring banker for Stephens Inc. in Dallas. “It was a wave of investors who had never touched the energy market before.”

They were following their usual playbook: buy the debt of companies in financial distress and hold onto it through a bankruptcy, converting the stake to equity and seizing control. Or, for private equity investors, buy unwanted assets or companies, replace the management teams and look for a buyer.

“For certain financially troubled producers wounded by the crash in 2015, some stakeholders may have given up hope that resurgent commodity prices will bail everyone out,” according to the Haynes & Boone oil and gas bankruptcy report for August. “For these producers, the game clock has run out of time to keep playing ‘kick the can’ with their creditors and other stakeholders.”

Insular World

For Adam Flikerski, an important part of spotting winners is being immersed in Texas’ energy community. After starting his career in New York, he moved to Houston in 2006 to co-found Blackgold Capital Management LP, which specializes in energy investments and counts KKR & Co. as a shareholder.

A deal he is working on now came about because his daughter goes to school with the chief executive’s daughter. While the number-crunching is important, investors sometimes just need to know “who has the good rock” that will yield the highest production at the lowest cost, he said. His firm manages about $1 billion of assets.

Flikerski and other Texas-based professionals said the companies filing for bankruptcy this year never had great assets, or have capital structures that are unsustainable with oil in the $50 range.

“Most firms with serious E&P efforts have a presence in Texas to cover local relationships,” Stephens’ Gurley said. “So if you’re not at the cafe store in Midland, if you’re not at the petroleum club in Houston, you may miss opportunities.”

Investing in the Permian basin requires not only understanding how to value assets and read reserve reports, but also how to drill wells properly, Getzler’s Haber said. One client who sought his help had invested in a pool of loans to companies that were having problems, including having drilled wells too close together and producing less oil than expected — “too many straws in the Coca-Cola,” as he put it. Successful investment firms often have a geologist and reserve engineer on staff.

“There is a feeling that you can spreadsheet your way to success in your patch,” Haber said. “And I just don’t think you can.”

Even managers with previous energy experience found themselves struggling with some investments. The energy sector of the S&P 600 small-cap index has fallen more than 55% over the past 12 months, and energy companies are among the worst-performing junk bonds this year.

New York-based Fir Tree Capital Management LP, which also invested in several distressed energy companies, saw its energy fund lose half its value in 2018, Bloomberg News previously reported.

Blackgold’s Flikerski and other investors said that Fir Tree used its position in certain companies to push for cost cuts and asset sales — notwithstanding the overall performance.

A spokesman for Fir Tree declined to comment.

Chapter 22s

Overly ambitious projections for prices and production pushed some recently restructured companies, like Halcon Resources Corp., back into bankruptcy this year. Among Halcon’s large investors were Luminus Management LLC and Oaktree Capital Management LP, according to court documents. Both have offices in Texas.

Vanguard Natural Resources Inc. counted Marathon Asset Management LP and Monarch Alternative Capital LP among its term-loan holders when it filed for its second bankruptcy earlier this year, court documents showed.

Weatherford International Plc also went bankrupt in July, while EP Energy Corp. and Alta Mesa Resources Inc. have warned of possible Chapter 11 filings.

“The lesson investors learned is that E&P companies should operate with little or no debt,” Louis Hanover, chief investment officer at Marathon, said in an emailed statement.

Representatives for Monarch, Luminus, Halcon and Vanguard didn’t respond to requests for comment. Oaktree declined to comment.

Read More: Halcon Files for Second Bankruptcy After Tripping Debt Limit

Five years ago, Justin Stolte, a mergers and acquisitions partner at Gibson Dunn & Crutcher LLP in Houston, was helping PE sponsors fund as many management teams as the firm could. Now, he’s undoing much of that work, but exiting Permian investments has been difficult since buying interest has dried up.

That has led to the rise of “smashcos,” in which a private equity firm will take two or more struggling companies and put them together, hoping to get the best combination of assets and management. The recent tie-up of Midstates Petroleum Co. and Amplify Energy Corp. is a frequently mentioned example.

Representatives for Midstates and Amplify didn’t respond to a request for comment.

Haber said pitching even traditional, inexpensive wells with proven natural gas reserves has become a tough sell.

“They say it’s like catching a falling knife,” Haber said. “They want no part of energy.”

— With assistance by Rachel Adams-Heard(Updates return of S&P small cap index in the 17th paragraph. An earlier version corrected the spelling of the Haynes & Boone law firm)

HOUSTON–(BUSINESS WIRE)–BlackGold Capital Management LP (“BlackGold”), a private credit investment firm focused on the energy industry, today announced the completion of a first lien senior secured term loan with Eastham Enterprises, Inc., a privately held diversified and multi-generational oil field services company. Eastham provides drilling, machining, and forging services to energy companies. The loan transaction included co-investors.

The Eastham management team has succeeded in the drilling business for over four decades while maintaining a conservative balance sheet and navigating through volatile commodity prices. The forging business, started in 1913, has continued to innovate and deliver high value-added products for its customers.

“We continue to help fill the void left by traditional financial institutions and believe this financing should provide our investors with an attractive yield, low net debt leverage and solid asset coverage,” said Erik Dybesland, co-founder of BlackGold. “As capital for the energy sector continues to be scarce, our ability to address risk and drive returns for our investors, while creating solutions for borrowers has allowed BlackGold to source compelling underwritings.”

Adam Flikerski, co-founder, added, “We are pleased to partner with Eastham. We continue to find opportunities in mid-sized energy companies for creative structures to address their funding requirements. Our team diligently adheres to our commitment of assessing downside risks and aims to deliver a return stream our investors expect.”

BlackGold Capital Management, founded in 2006, has invested approximately $8 billion in both public and private energy companies, across upstream, midstream, and oil field services.

HOUSTON–(BUSINESS WIRE)–BlackGold Capital Management LP (“BlackGold”), a private credit investment firm focused on the energy industry, today announced the acquisition of a portfolio of Overriding Royalty Interests (ORRI) in the Utica shale of Ohio. The acquisition was completed in conjunction with co-investors.

The ORRI will provide investors a portion of the revenue from natural gas production. BlackGold has also partnered with an established management team with a track record of investing in ORRIs.

“The energy sector is in a multi-year transition and the industry remains under stress,” said Adam Flikerski, co-founder of BlackGold. “We believe there is strong demand for us to fill a gap left by banks and provide capital to middle market energy companies, as evidenced by our robust pipeline of funding opportunities.”

Erik Dybesland, co-founder of BlackGold added, “Given the demand for capital in the energy industry and traditional sources curtailed, we believe that our platform provides the skills necessary to source opportunities, provide creative solutions for companies, and deliver solid outcomes for our institutional partners.”

BlackGold Capital Management, founded in 2006, has invested over $7.5 billion in both public and private energy companies, across upstream, midstream, and oil field services.

About BlackGold

BlackGold Capital Management LP is a leading investment firm focused on opportunistic catalyst-driven investments in the energy industry. The firm’s team has decades of experience and expertise in energy with extensive long-standing industry relationships. Founded in 2006, BlackGold seeks to generate compelling returns for its investors by employing a deep fundamental research-driven approach in analyzing energy assets and capital structures. The firm manages approximately $1 billion in capital across its investment platform which includes public and private commingled strategies as well as managed accounts. KKR & Co. LP, a global investment firm that manages investments across multiple asset classes, holds a 24.9% passive minority interest in BlackGold Capital Management LP. For more information, please visit www.BlackGoldCap.com.

The Company has committed to draw a minimum of $100 million under the credit facility with the additional $50 million to be available to the Company for a period of 12 months subsequent to closing. The Company is under no obligation to borrow additional funds under the credit facility.

With the closing of this financing, combined with equity capital that has been committed to date, Atlas has fully secured an amount of capital that the Company believes is sufficient to complete the construction of both the Kermit and Monahans plants.

Atlas Sand’s CFO, John Turner commented, “We’re very pleased to bring on a very experienced energy investor like BlackGold as a partner. BlackGold understands the size of the opportunity created by the ongoing Permian Basin frac sand disruption. This transaction represents another significant step towards our long-term growth plans.”

BlackGold Managing Partner, Adam Flikerski commented, “BlackGold is pleased to partner with the Atlas Sand team, highlighting both our excitement in the project itself and the secular shift in Permian Basin frac sand fundamentals.” BlackGold Managing Partner, Erik Dybesland added, “This new commitment to Atlas Sand builds upon the launch of our private structure fund last year, and underscores BlackGold’s commitment to being a solutions provider for companies in the natural resources industry.”

About Atlas Sand
Atlas Sand was founded organically by long-time E&P operators with significant experience in the Permian Basin alongside the best talent available in the sand mining industry. The Company was formed to provide the oil & gas industry access to the largest, highest quality frac sand reserves located in the heart of the most prolific resource plays of West Texas, including our high crush strength 40/70 and 100 mesh products. Please visit www.atlassand.com for further details regarding our history, management’s background, product offerings and specifications, sales information and employment opportunities.

About BlackGold
BlackGold Capital Management LP is a leading investment firm focused on opportunistic catalyst-driven investments in the energy industry. The firm’s team has decades of experience and expertise in energy with extensive long-standing industry relationships. Founded in 2006, BlackGold seeks to generate compelling returns for its investors by employing a deep fundamental research-driven approach in analyzing energy assets and capital structures. The firm manages $1.2 billion in capital across its investment platform which includes public and private commingled strategies as well as managed accounts. KKR & Co. LP, a global investment firm that manages investments across multiple asset classes, holds a 24.9% passive minority interest in BlackGold Capital Management LP. For more information, please visit www.BlackGoldCap.com.