Millennial Energy Partners has entered the volumetric production payment (VPP) market as a capital source for producers in the oil and gas industry in response to overwhelming market outreach in the second quarter, the Houston-based energy asset manager said.
“As the industry continues to grapple with unprecedented volatility and sharp backwardation, Millennial believes the VPP provides a timely form of capital capable of delivering full value to operators for early-time backwardated commodity prices,” the firm said in a release on Sept. 19.
“The VPP is a natural extension of our history of asset-level joint venture investment.”—John Clayton Brett, Millennial Energy Partners
Millennial was founded in 2012 by Edward Andrew Scoggins Jr., who today manages the firm with John Clayton Brett. Over its history, Millennial has raised over $900 million in investor commitments and has invested in lease-level, wellbore and drillco joint ventures across the continental U.S.
“The VPP is a natural extension of our history of asset-level joint venture investment. We are excited to apply our data-driven production and market-analysis to this underserved market in order to significantly improve realized asset values for operators,” commented Brett, who serves as partner and principal at Millennial.
Millennial’s VPPs are designed to provide a low-cost way for operators to access significant liquidity at prevailing strip prices, without discount, while retaining operatorship and terminal value of their assets, according to the firm’s release.
The VPP market has traditionally been served by larger capital sources whose investment flexibility is constrained by institutional scale, which Millennial said has left middle market and lower middle market operators stranded from a valuable capital solution. At the same time, bids for middle market asset packages in the first half of 2022 have implied forward commodity prices well below current strip pricing, and many sale processes have failed to transact, the firm added.
Millennial will focus on VPP transactions between $10 million and $50 million and intends to deploy $150 million of capital into this space in the next 12 months. Transactions will consist of upfront cash in exchange for the conveyance of a term overriding royalty interest covering a fixed number of wellbores, designed to deliver a fixed quantity of hydrocarbons over a two-, three- or four-year term.
Additionally, Millennial is manager of the York Tactical Energy Fund with the fund’s general partner, York Capital Management, and Brett and Scoggins currently serve on its investment committee. The firm also previously managed an operated, nonoperated and mineral strategy in the Anadarko Basin of Oklahoma from 2015 to 2021.
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