Some private-equity firms are increasingly turning to royalties and mineral rights to deploy capital in a depressed energy industry, preferring to partake in wells operated by others than running the wells themselves.
NGP Energy Capital Management, for one, is raising a fund to buy mineral rights after having backed several mineral rights-focused entities from two previous funds that also invested in oil and gas producers. The Dallas firm is seeking as much as $500 million for NGP Royalty Partners LP, which will focus exclusively on rights deals, according to public documents.
Mineral-rights owners, who typically are entitled to 20% to 25% of the revenue generated by underlying oil and gas wells, have an advantage over the well operators because they don’t have to help pay for drilling and production costs, said David Hayes, a partner at NGP, during a presentation to Alaska Permanent Fund Corp., the state’s $65 billion sovereign investment vehicle. That means a drop in oil prices will disproportionately squeeze the operator’s income compared with royalty owners, the presentation showed.