Best Positioned Energy / Houston PE Firms?

Energy PE has been a huge bubble lately that is definitely popping, but the reality is the entire business model has always been about timing. No one is generating a mid to high teens IRR without price expansion in upstream O&G - there just aren’t enough cost synergies out there. The PE model has benefitted (and suffered) from the massive appetite for institutional capital to be put to work. Fact of the matter is that it’s a beta industry for LPs - they don’t really care all that much +- 10% IRR, but they want to be damn sure that when oil spikes to 85 they are able to cash out on some winners because it likely means everything else in their portfolio is gonna take a ding. As a result - funds like NGP / Encap / Quantum / First Reserve raise basically mega funds at 4-5Bn and they raise them very quickly, but then the “diversified” nature of their investment is basically backing one team in Martin County and one team in Midland County.

Energy PE is changing rapidly. The upstream guys who used to flip acreage to strategics for crazy Moics during the shale boom can’t get anyone to pay for anything other than their currently flowing asset base, so naturally every portco that they currently have is likely a dog. Midstream guys who have historically backed G&P teams are realizing that the demand for wellhead infrastructure isn’t really there because it’s mostly built out in every major basin - so they pivot to downstream adjacent assets / terminals / refined products and most notably renewable infrastructure.

Realistically, the industry probably only needs about 1/4 of the Pe money thats been raised in the last decade. A lot of the LPs that have been huge energy investors are likely pivoting to focus more on ESG / renewable strategies that are much less of a quantum game and more about differentiation (as PE should be).

All that said - I don’t know what energy PEs will do wrt recruiting. Many are probably downsizing anyways but there is going to always be churn at the junior level. Below is a list of how I personally view the PE landscape - only including the players who I think are the ones who will come away from all this as the “winners” and thus the most likely to be business as usual wrt hiring. Lots of overlap between these funds (ie most of the midstream guys are becoming more infra/downstream as G&P buildout isn’t as necessary, upstream guys have some midstream portcos, etc.). Just my way of bifurcating them do not take this as gospel

Upstream: Encap, NGP, Quantum, Carnelian, Denham, Lime Rock, Kayne Anderson

Midstream: Flatrock, ArcLight, Tailwater, First Reserve, Energy Spectrum

Infrastructure: Stonepeak, Energy Capital Partners, the mega funds, Riverstone (they’re doing a full 180 I’ve heard and going all renewable / infra), EIG, GIP

Honestly this could all change with the stroke of the legislative pen (it won’t, obviously, but there is serious regulatory risk with a Biden presidency); on the flip side this could all change with an OPEC cut, demand coming back on reopening, a war, etc. it’s a risky business but it’s absolutely essential - the fundamentals are strong. You’re talking about the companies that literally keep the lights on and the stoves hot. Not to mention there are multiple billions of people in the world without access to energy - so there is still room for growth. Renewables are a real thing, but the Pe guys that can weather this storm and get their feet wet in the transition game might be setting themselves up really well for success over the next decade