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Firm that secured $25 million for Aurora Gas ready to look at other Alaska investment opportunities Cosco Capital says oil and gas investments still draw interest from capitalists; energy specific private funds have $30 billion to invest Allen Baker PNA Contributing Writer
While venture capitalists these days may be a bit gun-shy about new technology companies, there’s plenty of money waiting for the right oilfield entrepreneurs with the right ideas. That’s the message from Cameron O. Smith, who started Cosco Capital Management LLC, a New York/Connecticut based investment banking firm, a decade ago.
“What we’re attempting to find are top-notch individuals who have investment-worthy ideas and are willing to back these ideas with their own capital and total focus. That combination I can find capital for,” says Smith.
And there’s capital out there, perhaps even more than in the days when the traditional stock market was flying high.
$30 billion “There are some 15 energy private equity funds and another five that at least have an energy interest. They control on the order of $30 billion.
“What’s interesting is that almost all of the energy-specific funds and some of the others have been in the market and have raised fresh capital in the last 18 months,” he says. “These funds have had a banner period not only of raising funds, but sometimes double what they raised before.”
Small and large He ticks off the names of some of the funds: Natural Gas Partners, First Reserve, Yorktown, Quantum, Lime Rock, Kayne Anderson. And there are some general funds with more familiar names that are involved in energy investing: Warburg Pincus, Morgan Stanley. Some are in Houston, some in New York.
“It can be private players whether small or large,” Smith notes.
Where’s the money coming from, when investors are looking at shrinking account statements every month?
“Pension funds and endowments, our primary sources, have seen the public markets crash. They’ve taken their capital and increased their allocations into these funds.
“What’s disaster in the public market is bliss in the capital market.”
Alaska connection Smith came to the attention of Alaska oil people when his company arranged a $25 million line of equity for Aurora Gas LLC, which just announced a further investment in Cook Inlet. (See story on page 1)
Beyond that, Smith admits, he has very little background in Alaska. But he’s been in the oil business for a lot of years and he’s ready to listen.
Smith says Alaska could have potential and he is ready to investigate in a number of areas, not just exploration and production.
“There may be more opportunity in the collateral businesses in Alaska than there are in E&P,” he notes. “John D. (Rockefeller) made his fortune not by owning leases but by owning pipelines.”
Transportation evolution Speaking of pipelines, Smith theorized that there could be more room for smaller oil companies if that industry evolves a bit. “I don’t know, but it strikes me that the transportation systems in Alaska could well change. That has been the largest impediment to independents.”
Beyond the dominant Alaska oil industry lies the huge gas resource, and Smith says he’s concerned “that we’re running out of gas faster than we’re finding it.”
If a major gas pipeline is built, “somebody is going to be supplying the components.” That means more potential clients, people who need money to make their dreams work.
Saleable ideas “My point is that good people and good business ideas are saleable not just in the context of exploration and development.
“But it’s always best to have a good track record. Not just ‘I’ve found this number of barrels,’ Smith says. “Part of it is the experience. If you’ve been through the experience, you know what’s involved.
“The idea is not a specific and individual project, but something that’s going to become a business.
“We like people who have started a company, maybe built it and sold it, and now want to try something a bit bigger.”
How big? “Most of the investors I work with, their minimum is $15 million,” he says. “The top of the bell curve is probably $15 million to $35 million.”
But the money can be larger, even if the company is small.
“Last summer we raised a $75 million line of equity for a two-man start-up.” Cosco’s role Cosco serves as an intermediary between the money and the entrepreneurs, and Smith and his partners get to know the parties well.
“When you’re raising equity, you’re in effect proposing a marriage. The chemistry doesn’t always work out.”
So Cosco works on the projects, typically, for four to six months.
Most of our time is performing due diligence on the principals,” he says. “In terms of valuation of assets, we typically rely on third-party experts.”
But for the people supplying the money, Cosco provides an important service.
“They know if they review or look at something we bring to them, the individual will already have been vetted, the ideas will be well-conceived.” Ongoing projects Cosco does perhaps six to 15 projects in a given year, but the involvement can be much longer than a simple marriage-brokering encounter.
“We invariably invest alongside the institutions. What we do is reinvest a significant portion of the fee we are paid.”
Currently Cosco has a couple of active investments in Australia, as well as several in Canada and several in the United States.
“We’re looking seriously as some situations currently in Argentina,” he says, adding that “there are far fewer capital sources willing to look abroad that in American.
“It’s a great business because it forces you to learn about parts of the world you have no idea about.”
Oil background While Smith apologizes a bit for being an investment banker, saying “we are about as popular as lawyers,” he and his partners have a solid grounding in the industry they serve.
“I’m a reformed geologist,” he says, “as is my partner. Of the five of us, four had careers in the industry.”
Aside from Smith, who holds the title of senior managing director, the company has Managing Director William E. Weidner in Connecticut, Principals T. Prescott Kessey in Houston and Christopher Tasik in Connecticut and Senior Associate Sharon L. Younger in Tulsa.
“The principals spend quite a lot of their time in Houston,” Smith says. “We are fairly well known in this niche.”
As for Smith’s own background before founding the company that bears his initials, his primary business from 1976 though 1991 was running a private oil company.
Smith, whose current address is Park Avenue, New York, grew up just 20 miles west of Calgary, though it was fairly remote ranchland then, not the developed suburban area it is now.
He says the Canadians probably aren’t getting much of a benefit from the current disparity in the values of the two countries’ currencies, “but I think it gives the Americans investing in Canada a big advantage.”
Cosco’s web page address is www.coscocap.com.
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