NGP Seeks $1.5 Billion to Take Its Oil-And-Gas Strategy to Clean Energy — WSJ

By Luis Garcia

NGP Energy Capital Management is seeking $1.5 billion for a new fund to back entrepreneurs looking to buy and build clean-energy assets, expanding a strategy the private-equity firm has followed for decades in the oil-and-gas sector.

The fund

The Dallas-based firm so far has secured $450 million in anchor commitments for the fund, NGP Sustainable Real Assets II, from a handful of investors, said Sam Stoutner, an NGP partner who co-leads the firm's energy-transition group.

Founded in 1988, NGP historically focused on oil-and-gas deals and to date has raised 13 flagship funds dedicated to the sector. Like other large energy-focused firms, NGP typically provides as much as a few hundred million dollars to management teams to buy and develop oil fields and pipelines, holding controlling interests in the businesses those teams form. After selling the holdings, NGP often backs the same management teams again, so that they can start a new venture, a process it frequently repeats several times.

NGP also makes smaller, growth investments in providers of equipment and services to clean energy-infrastructure operators. The firm wrapped up its latest fund focused on that strategy in 2023, with $700 million in commitments. As markets such as renewable power, battery systems, electric vehicles and carbon capture matured, the firm decided to adapt its oil-and-gas approach to those sectors, focusing on developing assets rather than just making minority investments in existing businesses, Stoutner said.

"The volume of high quality management teams has certainly grown as sectors have matured," he said.

The strategy

NGP plans to invest $50 million to $150 million in each of about 10 to 12 asset developers out of the new fund, according to a presentation viewed by WSJ Pro.

The firm previously backed some project developers through its clean-energy growth fund before pushing even further in the past two years by committing a total of roughly $481 million drawn from that fund, its main oil-and-gas pool and co-investment capital to five such businesses. They include solar and wind developer Segue Renewables II; battery-systems operator Liminal Energy; and EV Realty, a provider of charging stations for commercial vehicle fleets. It also backed carbon capture-project developer CO280 Solutions and, alongside private-equity peer Sandbrook Capital, invested in Cloverleaf Infrastructure, which builds data center locations and power infrastructure for data centers.

The new fund will build on those investments, Stoutner said. "We'll either invest in the same companies or successor entities with the same management teams, identical to our approach in our oil-and-gas funds," he added.

The new strategy is benefiting from a greater willingness among clean energy entrepreneurs to sell controlling stakes of their businesses to private equity, Stoutner said. Doing so tends to be less risky than raising successive funding rounds from venture capitalists and other investors in the hope that valuations keep rising, he added.

"That kind of venture-style capital is really not showing up to back project developers," Stoutner said.

The requirement that management teams invest their own capital alongside their private-equity backers creates an alignment of interests that is also not always present in other investment approaches, he added.

"Management's returns are fundamentally linked to the investors' returns in our structure," Stoutner said. "We believe it's the right model for funding project-development businesses."

The context

NGP is pitching the new fund as a rollback of clean-energy tax credits created hurdles for certain renewable-energy sectors, according to analysts and fund managers. Stoutner said NGP avoids backing businesses whose returns rely on favorable government policies, one reason it hasn't yet entered some sectors, such as hydrogen.

Rising demand for electricity from new factories and data centers running artificial-intelligence systems is bolstering returns, Stoutner said. As an example, he cited some deals that Cloverleaf has struck to sell sites for the construction of large data centers, including the Lighthouse project in Port Washington, Wis., that developer Vantage Data Centers is building for tech companies Oracle and OpenAI.

"The best projects will still get built," he said. "The projects that were marginal or only worked with policy support, those will be challenged."

Write to Luis Garcia at luis.garcia@wsj.com