James Griffis' interest in finance was sparked as a child when he accompanied his mother to community-bank board meetings. "It just clicked with me," he says.
He is the fourth generation to grow up on his family's cattle ranch near what he affectionately calls "the mighty town of Andice, Texas, population 25." After graduation from Texas A&M in 2000 with a bachelor's in business administration, he joined Merrill Lynch's private bank in Houston. He then earned his MBA from St. Thomas University in Houston while working for JP Morgan's private bank.
Griffis entered the energy arena when he transferred to New York as an associate in the syndicated and leveraged finance group of JP Morgan's natural resources department. "I got into energy purely as a way to get home from New York, because there was a natural resources department in Houston," he says. The team he worked on issued high-yield bonds and credit facilities primarily for oil and gas companies through 2007 and into 2008—the best and the worst of times.
In September 2008, a headhunter contacted him about a financial analyst position with Five States Energy Capital, a Dallas-based private oil and gas investment company that evolved from Five States Energy, founded by James A. Gibbs. Five States Energy Capital provides mezzanine capital, both debt and preferred equity.
The fit was right—Griffis had worked with high-net-worth investors with private banks in Texas and was working with energy companies from his position in New York. "Although I hadn't realized it, everything I'd been doing in the past 10 years had prepared me for this job," he says. Soon he was out of Manhattan, headed for Dallas.
As a financial analyst with Five States, Griffis built financial models and did analysis for a potential mezzanine transaction. But six months later, his industry and investor contacts propelled a move to business development. A year later, he was promoted to vice president of business development, splitting his time between the Midland and Dallas offices.
Today he's busy telling the Five States story and seeking transactions for mezzanine investment or loans. The company has interests in 500 to 600 wells in several states and its $155-million fund, raised in '07-'08, is about 35% placed. Recently he discussed Five States' market niche, its transactions, and its less-well-known role as a capital provider.
Investor: What is Five States' niche?
Griffis: Our investment size is generally $3- to $35 million—above the community bank and high-net-worth level, but below the commercial, regional and money-center bank and larger private-equity firm level. We're focused on hard-rock, long-life, shallow-decline assets.
People know us as a nonoperated working interest owner—but they haven't known us as a capital and mezzanine provider. We have capital available, and we're looking for opportunities to place it.
Investor: What transactions have you done in the past year or so?
Griffis: We closed on about $40 million in investments in the past year and a half. I would like to have the entire $115-million fund placed by the end of 2011, so we can raise a new fund.
But one of the beauties of Five States is it's been around for 25 years, with investors in the U.S. and Europe. A lot of those individuals have invested with us again and again, so we have more flexibility in making investments—we can do the right investment at the right point in time. We have long-term funds.
Investor: What assets and production typify recent deals?
Griffis: Two of the three deals we did in 2010 were in the Permian Basin. All were primarily oil deals. One provided exploitation and development capital for drilling 10 wells in addition to two wells an operator had already drilled; the second was a small acquisition in the Permian with a long-time operator/partner of ours.
Investor: You like oil not just for its recent high prices but also as a global commodity.
Griffis: We're seeing demand for oil start to increase as the global economy recovers. But if you're a value investor, as Five States is, you're starting to take a look at natural gas. Companies are being placed out of oil acquisitions due to metrics and I think there are going to be some great opportunities in the next 12 to 18 months in natural gas.
Investor: How does Five States evaluate opportunities?
Griffis: We have a technical team of six professionals led by two senior engineers. We evaluate projects quickly. We're not looking at transactions like a bank—we're looking at them as an independent oil company would.
Also, we don't have a predetermined exit time frame or exit-multiple strategy. Having acquired almost 1,000 properties between 1985 and 2005, we have the experience to work with operators to take advantage of properties in the way they want to.
Investor: What's the best part of your job?
Griffis: The level of people you run across, the enthusiasm people have for this business. That's what I like most.
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