Newsroom

EnCap Investments LP launched its first midstream fund at quite possibly the worst time ever.

With the private placement memorandum out in July 2008, the firm relied on perseverance and some market luck to wrap up EnCap Energy Infrastructure Fund at the end of March at $791.6 million, surpassing its $750 million target.

The fund, launched in partnership with midstream advisory firm Flatrock Energy Advisors LLC, held a first close in December 2008 at $250 million. The hard cap was $1 billion.

“The fund raise was pretty much as you would envision it – difficult because of the environment,” said EnCap Principal Bob Zorich. “People had all sorts of issues that were primarily market-induced. The result was that it took longer to raise - but we were ultimately successful.” Limited partners were mostly endowments, foundations and public pensions.

Although EnCap has been investing in energy for over two decades, historically focusing on upstream operations like oil and gas exploration and production, EnCap Energy Infrastructure was its first midstream fund. To many LPs, it was considered a first-time fund, and that presented problems.

“The result of it being perceived as a new strategy knocked out certain LPs automatically,” said Zorich. “Prior to Lehman Brothers we had tremendous enthusiasm and felt like we could reach the hard cap. After Lehman we went on a death march until we succeeded.”

The allocations opened up during the latter half of 2009, however, and a considerable commitment from one LP put the fund over its target.

EnCap Energy Infrastructure Fund will focus on growth capital to midstream projects in the oil and gas industry in North America. The fund will likely end up with around 10 portfolio companies, according to Zorich.

It currently has already invested $215 million in capital in five companies, including midstream energy businesses Rangeland Energy LLC and Meritage Midstream Services - both November 2009 investments - and Cardinal Midstream LLC, a natural-gas processor it backed in January 2009.

“The opportunity there in the midstream sector is, in our minds, unprecedented,” Zorich said.