30 Jul Fulcrum’s Strategy Creates Attractive Returns in Today’s Market
Because public markets have little appetite for initial public offerings (IPOs) or M&A activity currently, Fulcrum Energy Capital Funds is pursuing a strategy to ensure returns to its shareholders based on the cashflow of its portfolio companies. The recent acquisition of Eagle Ford assets and the formation of Fulcrum’s new portfolio company, Pachira Oil & Gas, represent another successful execution of the firm’s investment strategy.
The high-quality assets were purchased from a seller experiencing financial distress allowing Fulcrum to acquire them at a significant discount. Based on the purchase price, existing production, and current cashflow the asset already provides attractive returns, and with minimal capital investment, the firm believes that it can improve upon existing operations and increase returns further.
Traditionally, private equity will exit a company through a public offering or by selling its interest in a company, but with cautious investors putting significantly less capital to work in energy companies so far in 2019, Fulcrum targets investments which can deliver a 2.5x or greater return over six years through cash flow meaning that our returns are not dependent on appetite from public markets.
Given Pachira’s knowledge of the area and the attractiveness of deals, Fulcrum foresees multiple add-on acquisitions at deep discounts going forward based on cash flow metrics that generate attractive returns to LPs at a lower risk than the oil and gas developer model of lease, drill, and try to sell into public markets.