American Oil and Gas Reporter - April 2018 - 68

VISION2020
hedging, and discipline on entry and exit will continue to be
critical variables to creating value for private equity-backed
companies. In this next chapter of heightened competition and
increased focus on longer-term development, picking the right
private equity partner will be more important than ever before.

on a myriad of conventional and unconventional strategies.
While it's hard to precisely estimate the percentage of the
capital investment needs that will be funded by private equity,
we are confident that there will be ample opportunity for
existing funds and future funds to deploy equity capital.

the few large-scale/good-return investment opportunities
globally." What factors could challenge resource plays'
standing at the top of the list for private equity investors?
How many private equity-backed U.S. operating companies are active today? Will that number grow through
2020? In which basins are these companies active?
What is the total capital investment potential in U.S. resource plays at current spending levels over the next
few years, and what percentage of that total is likely to
be met by private equity?

partner, what characteristics do you look for in an operating company? Will healthy numbers of new private
equity-backed startups continue to emerge? Will the
ultimate goal of these new players be a successful
exit strategy through merger or acquisition, or will
more companies seek to leverage private equity to
grow to the point where an IPO becomes feasible?
Speaking of IPOs, many publicly traded companies
have stated their intent to operate within cash flows
and focus on shareholder returns. Does that strategic
shift create renewed opportunity for private equity
among public companies?

You also have pointed out that resource plays
Private equity has tended to primarily back
Q: have
Q: smaller
"gone from worst to first, creating one of
private companies. As a private equity

VANLOH: For the North American oil and gas industry, the

past decade has really been a remarkable period. In a short
time, the widespread adoption and continuous improvement in
the learning curve for new unconventional technologies allowed
the United States to eclipse production levels not seen since the
early 1970s and emerge as the world's leading hydrocarbon
growth engine. Today, the top four oil resource plays (Midland,
Delaware, SCOOP/STACK and Eagle Ford) are competitive
with the lowest-cost oil supply sources in the world. Hundreds
of thousands of jobs have been created, billions of dollars in incremental tax revenues have been generated, and the global
geopolitical landscape has been re-written as our reliance on
imported oil from unstable and hostile foreign countries has diminished significantly.
The total capital investment needed to fully develop North
America's unconventional resource base is massive. We
estimate that as much as $9 trillion ultimately will be needed
to fully develop the currently identified North American
resource base and the associated infrastructure build-out. For
2018, we expect North American capital spending in the upstream and midstream sectors will be approximately $200
billion, which would imply run-rate spending of $1 trillion
over the next five years. At current spending levels, we
estimate that North American unconventional resources provide
a 40- to 50-year investment window.
In 2017, North American independent upstream and midstream
companies had EBITDA of $155 billion. While these EBITDA
figures will change in years to come, the funding gap between
EBITDA and annual capital spending illuminates the need for
alternative capital sources to fund the current opportunity set.
Today, we estimate that there are more than 360 private equity-backed upstream companies; some have assets and projects,
others do not. While more than 50 percent of these teams are
focused in the Permian or Mid-Continent regions, they collectively
cover all basins in North America and are equipped to execute
68 THE AMERICAN OIL & GAS REPORTER

VANLOH: This is one area where you really see a divergence
in strategy across the private equity landscape. Since Quantum's
inception in 1998, we have been committed to providing larger
capital commitments to a smaller number of management
teams in any given fund. We are trying to build sizeable
companies that are execution leaders in their respective operating
areas. By focusing on fewer companies, we can be better
partners to our management teams and better stewards of our
limited partners' capital. We want to partner with entrepreneurs
we like, admire and trust and who value our expertise as much
as we value theirs.
Over our 20-year history, we have cultivated many lasting
relationships that have resulted in repeat partnerships. These
repeat partnerships help to form the foundation of our capital
investment strategy and we sleep well at night knowing that our
capital is in the hands of proven capital allocators.
With that said, we always are looking to partner with new
management teams. In new teams, we look for a proven capital
allocator supported by exceptional technical leaders. These entrepreneurs come from a myriad of backgrounds (geology, engineering and operations, finance, etc.) but at their core, they
place a premium on technical and operational excellence as
well as conservative financial management. We are confident
that many high-quality teams will continue to emerge and we
welcome the opportunity to sit down with them and discuss the
visions they have for their startups. We understand that every
team will look different, some will be led by seasoned veterans
and others will be led by a next generation oil and gas leader.
Whoever you are, we welcome the opportunity to explore partnership opportunities.
As mentioned, today's teams need to be prepared to hold
assets for longer and to create value through operational
excellence. Teams need to embrace technology and harness the



American Oil and Gas Reporter - April 2018

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