Goldman, Lime Rock deal shows life in energy

27% of respondents to Evercore's 2020 year-end survey said they had an appetite for energy in 2021, making it the second-least popular asset class.

Lime Rock Partners has closed its second continuation fund in a rare energy GP-led deal.

The Westport, Connecticut-headquartered firm has rolled assets from 2012-vintage Lime Rock Partners VI into a continuation vehicle anchored by Goldman Sachs Asset Management, according to a statement about the deal.

Lime Rock Partners VI AF closed on $203 million, the statement said. There was $134 million of new capital, including commitments to a separate co-investment vehicle. Moelis & Company advised on the process.

“With this, our second GP-led secondary, we continue to believe that there are good market solutions to respond to some investors’ preferences for liquidity while allowing others to hold investments beyond a normal fund life,” said John Reynolds, co-founder and managing director of Lime Rock.

A “vast majority” of net asset value in the continuation fund is made up of mineral and royalty interests in the Permian Basin, the largest petroleum-producing basin in the US, the statement said. These royalty interests were acquired by entities managed by CrownRock Minerals, the mineral-buying arm of drilling company CrownQuest Operating.

In 2007, Lime Rock and Houston-headquartered CrownQuest formed CrownRock to drill for oil and gas in the southern US.

In 2017, a stake in CrownRock was lifted out of Lime Rock’s 2006-vintage fund into a continuation fund in a $1.9 billion GP-led deal led by HarbourVest Partners, Secondaries Investor reported. Evercore advised on the deal.

The continuation vehicle Lime Rock Partners IV AF produced a net internal rate of return of 14.3 percent and investment multiple of 1.4x as of 31 March, according to data from the  California Public Employees’ Retirement System, which backed the the deal.

There have been a handful of large energy GP-led deals in recent years. These have tended not to target upstream oil and gas assets, the profitability of which is heavily linked to the oil price.

In a 2020 survey by Evercore, 27 percent of respondents said they had an appetite for energy in 2021, making it the second-least popular asset class after real estate.

“Returns can look fantastic in energy if you get [the movement in oil prices] right – it’s about who wants that supercharged bet,” a London-based managing director on the buy-side told Secondaries Investor in 2019.