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Enervest Ltd. Private Equity Funds Plummet in Value

On July 16, 2017, the Wall Street Journal published an article – From $2 Billion to Zero: A Private-Equity Fund Goes Bust in the Oil Patch – discussing the financial distress besetting Houston based EnerVest Ltd. (“EnerVest”), a private equity firm focused on energy investments.  Essentially, the article discussed how falling oil prices (to a then current price of $45 per barrel of crude) had worked against the fund managers at EnerVest, who had borrowed heavily to invest in oil and gas wells before the recent collapse in energy prices.

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According to recent reports, several of EverVest’s energy funds employed leverage to purchase oil and gas wells when crude process were much higher.  As a result, investors in those funds will undoubtedly suffer significant losses on their investments.  Further, recent reports have suggested that EnerVest fund managers have engaged in discussions to recapitalize or otherwise sell assets (presumably at firesale prices) from the $1.5 billion EnerVest Energy Institutional Fund XII, which closed in 2010, as well as the $2 billion EnerVest Institutional Fund XIII, which closed in 2013.

In the way of brief background, EnerVest is a private-equity firm that focuses on energy investments, claiming to operate more U.S. oil and gas wells than any other company operating in that space.  EnerVest began raising investor capital in 2013 when oil and gas was trading at an average price of $90 per barrel; since that time, energy prices have collapsed, with crude currently trading around $50 per barrel (as of October 2017).

Traditionally, EnerVest’s fund offerings would see outsized returns of around 30% per year.  As such, EnerVest had little trouble attracting new investment capital, and was able to aggressively expand its oil and gas well portfolio in recent years.  However, with the recent collapse in energy prices, EnerVest has been hit hard, and according to the Wall Street Journal, is struggling to stay afloat.  Analysis conducted by the Cambridge Associates, an investment firm with a specialized focus on the private equity investment arena, has cited the fact that only seven private-equity funds worth more than $1 billion have ever lost money for investors.

The expected losses in the EnerVest funds will be impactful not only due to the fact that so few private equity funds of that size have lost money, but also because the losses are expected to be massive in terms of percentage of investment dollars lost.  According to the Wall Street Journal, and other recent reports, EnerVest will likely leave its clients, including major endowment funds and pensions, with at most pennies on the dollar.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in energy investments, including drilling funds and direct private placement investments.  Depending on the facts and circumstances, investors may be able to recover their losses in FINRA arbitration or litigation.   Investors may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

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