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SpecialReport: Capital Crews
Looking in more detail, Energy Council adds that " the
capital available is there for top-notch assets only. There is still
a healthy pool of investors who continue to see value and
significant future upside potential in the upstream sector, but
those who will be able to raise it will be those who are
successfully able to manage risk, run efficient asset bases and
re-evaluate how they are able to create value for investors. "

in conventional can get lost, " Cecere suggests.
That combination of patience and portfolio diversity has
yielded results, Tailwater emphasizes. Fry cites crude oil as an
example. " Crude had a very difficult second quarter 2020, but
dry gas outperformed, " he observes. " If you look at the
Haynesville Shale today, for example, there is a tremendous
amount of activity. "

Believe In The Rock
Lingering challenges and the industry's uncertain trajectory
have left many investors in a bind; however, despite the tough
market conditions, Tailwater Capital, a growth-oriented, middle
market private equity firm, reports it has continued to perform
well, successfully closing its fourth fund in March 2020 and
completing a number of acquisitions and add-on transactions
already this year. The firm says it has employed several key
strategies to position it for success.
" We challenge ourselves to remain patient for the right opportunities, and as a result, several of the recent deals we have
completed were done at significant discounts to valuations a
year ago, " says Tailwater Capital partner Joel Fry. " We needed
to provide legacy financiers the time to work through deals in
order to transact, and we feel like we have been successful with
hitting the ground running in 2021. Throughout, we have
supported our existing portfolio company partners, and when
you believe in the rock, it is only a matter of time for the energy
market to normalize. "

" We have been successful with
hitting the ground running in
2021. Throughout, we have
supported our existing
portfolio company partners. "
Joel Fry, Partner
Tailwater Capital

In addition to patience, Fry explains that aboveground considerations, modest leverage and a diversified portfolio are
essential. Tailwater invests in crude, dry and rich gas, natural
gas liquids and water. Fry's colleague David Cecere, also a
Tailwater partner, notes that the firm invests in conventional
and unconventional development for both upstream and midstream
operations. With regard to conventional assets, Cecere says that
smaller, private operators are particularly well positioned to
profit as assets need increased focus around managing operating
costs and efficiencies with a high degree of scrutiny.
" In the larger companies with a mix of conventional and unconventional production, the importance of cost management

" We have a presence, upstream
and midstream, in about every
onshore producing basin. As
such, we are looking through
the entire energy value chain. "
David Cecere, Partner
Tailwater Capital

Cecere adds, " A portfolio that has operational and geographic
diversity is less cyclical. Additionally, we are a lower-middlemarket private equity firm with both midstream and upstream
assets. We intentionally keep our operating companies on a
scale that will be a good fit for multiple potential buyers. "
While patience and portfolio diversification are crucial, they
do not tell the full story. Flexibility when it comes to exits and
the ability to adapt to the conditions of specific portfolio
companies is important as well. " Some portfolio companies
grow faster than others, and there can be unique circumstances
where we may invest in larger companies, but our strategy is to
maximize flexibility, " Cecere elaborates. " We may pursue a
sale to a larger public company or even consider an initial
public offering depending what type of exit makes sense. "
There is something to be said about how the overall lending
landscape is changing as well. With the onset of the pandemic
and natural changes arising within the energy industry, evidence
suggests lenders are increasingly cautious. However, according
to Fry, some lenders' total exit from the industry actually has
opened new opportunities for Tailwater.
" Tailwater is not overly focused on generating returns by
stretching the balance sheet, so we align well with lenders'
interests today by using a modest level of leverage, " he details.
" We also have acquired businesses from lenders that don't want
to operate businesses. We can apply equity capital and a management team to take over operatorship. "
There is also a focus on flexibility across the energy landscape,
Cecere points out. " We have a presence, upstream and midstream,
in about every onshore producing basin in the United States, "
he explains. " We have also participated in more than 700 wells
through our nonoperated fund and are very active consolidators
in the midstream. As such, we are looking through the entire
APRIL 2021 39



American Oil and Gas Reporter - April 2021

Table of Contents for the Digital Edition of American Oil and Gas Reporter - April 2021

Contents
American Oil and Gas Reporter - April 2021 - Intro
American Oil and Gas Reporter - April 2021 - Cover1
American Oil and Gas Reporter - April 2021 - Cover2
American Oil and Gas Reporter - April 2021 - Contents
American Oil and Gas Reporter - April 2021 - 4
American Oil and Gas Reporter - April 2021 - 5
American Oil and Gas Reporter - April 2021 - 6
American Oil and Gas Reporter - April 2021 - 7
American Oil and Gas Reporter - April 2021 - 8
American Oil and Gas Reporter - April 2021 - 9
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American Oil and Gas Reporter - April 2021 - Cover3
American Oil and Gas Reporter - April 2021 - Cover4
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