Post Oak’s Permian Roots Grow Deeper with $480MM in ’24 Minerals M&A

Oil and gas minerals and royalties have increasingly emerged as an asset class of their own in recent years, but Post Oak Energy Capital was always ahead of the curve.

For years, the Houston-based private equity firm has aggregated mineral and royalty interests across the Lower 48 to support its upstream investments. Today, those interests are managed in funds by Post Oak Minerals, an in-house unit backed by Post Oak Energy Capital.

Led by Managing Director Eric Madry, Post Oak Minerals manages around 85,000 net royalty acres (NRA) across the Permian, the Eagle Ford, the Williston, the Midcontinent and the Haynesville.

Over half of that acreage, around 48,000 NRA, is within the prolific Permian Basin, where most U.S. drilling activity happens today.

Despite its private status, Post Oak Minerals can still participate in processes for large-scale minerals and royalties packages. Post Oak Minerals V completed $480 million in minerals and royalties transactions in 2024—mostly in the Permian—including substantial acquisitions from APA Corp. subsidiary Apache and Hunt Oil.

But it also keeps an ear to the ground on smaller organic deals, leveraging Post Oak Energy Capital’s portfolio of upstream E&Ps that are scattered around the country.

Post Oak Minerals also keeps up with activity outside of the Permian, including in the gas-rich Haynesville Shale and in the emerging Utica oil window, Madry told Oil & Gas Investor in an exclusive interview in February.

This interview has been edited for length and clarity.

Chris Mathews: How long have you led Post Oak’s minerals and royalties arm?

Eric Madry: I joined in March 2021, so four years ago. I’m sure you’re very familiar with Post Oak Energy Capital and their activities. They’ve been a mainstay Houston-based private equity firm exclusively focusing on traditional oil and gas—predominantly upstream to midstream—for over 18 years.

About 12 years ago, they were one of the early groups to see the opportunity to invest in minerals and royalties as a standalone asset class, complementary to its upstream activities. They did that across several commitments to teams using traditional private equity structures.

Through those investments and commitments over that period, they built up a really neat portfolio and never really sold any meaningful portion of it.

There was a longer-term vision because minerals and royalties are naturally a longer duration, longer hold type of asset. Because there’s no operations, no ongoing operating costs, no plugging and abandonment liabilities. You have this exposure to ongoing future development as operators and industry advances.

It’s something that investors really appreciate and value, especially Post Oak investors. To facilitate all of that, the vision was to bring in a dedicated in-house team to manage the asset as a consolidated portfolio—even though they still sit in the individual funds.

Strategically, by being in-house, there’s a lot of opportunity for us being able to sit at the fund level side by side with the private equity investment professionals.

They see so much across all the different basins, all the emerging trends. They have relationships and so much technical knowledge. And then, we can interact freely with our upstream portfolio companies and all their technical teams and commercial relationships.

It also facilitated our ability to hold these assets in a much longer way than it would be natural to do so working with portfolio management companies.

CM: How have you seen the minerals and royalties space grow and evolve?

EM: Historically, going back to really pre-shale, there wasn’t a real institutional interest. It was more just cash flow. People would privately trade minerals. There were a handful of small boutique firms out there.

But what really changed with the shales was the value of the undeveloped minerals. If you were in the right areas, you could have confidence that they’re going to get developed.

Then, we’ve gone from early delineation and acreage capture, to drilling a couple small pads, to now: We’re doing full cube-style development. The value of the whole ecosystem just goes up. Then you have new benches, etcetera.

The sophistication of the investor base coming in is also up. It’s coming from the land grab, first-order of calling private landowners. There was an art to doing that; the classic kitchen table dynamic.

Now, the skill set is a lot more on processing large quantities of data, being able to filter through a large volume of opportunities to find attractive value.

CM: Are you seeing M&A packages and transactions growing bigger?

EM: We’re here in early February and we’ve already had a [$4.5 billion] deal. It was well expected; the Viper drop down of the Endeavor assets from Diamondback. But I think we’ll continue to see some of those bigger transactions.

Underneath that, there’s still a very healthy ecosystem of very small interests that are still trading around. What’s different is the size—from an acreage standpoint—will be fairly small on a lot of those deals. The valuations have obviously gone up.

Even as things get more and more picked over, there’s still a lot of organic deal flow floating around. We look at a lot of organic small things, and I think it’s very important for us to be engaged in those opportunities. We get a lot of insights from looking at and sometimes closing on those smaller deals that put us in a really good position when the right bigger deal comes along.

CM: How much M&A did you close on in 2024?

EM: In total, we were right at $480 million for the year.

CM: How important is the Permian to Post Oak Minerals’ portfolio?

EM: The history of Post Oak is, and our focus remains, very Permian-centric. That’s where the largest amount of our investment dollars has gone to.

But we think there are tremendous opportunities outside the Permian. We’re multi-basin. That’s very strategic for us because we can always quickly pivot. So, Post Oak has been very successful at being across most of the key basins that we talk about every day.

Obviously, the Permian stands above the rest, so we continue to model ourselves accordingly. Post Oak Minerals currently manages about 85,000 net royalty acres—of which around 48,000 net royalty acres are in the Permian.

Of the deals we did last year, they were even more allocated toward the Permian than normal. I think 97% to 98% of the interests and the value allocation was for the Permian.

We bought a substantial, unique package from Apache. They were monetizing some non-core assets for them following their merger with [Callon Petroleum].

And Hunt Oil, which I’m sure has been around for over 100 years now, had some reasons why it made sense for them to monetize the bulk of their Permian mineral and royalty assets.

CM: Do you think E&Ps are increasingly willing to look at minerals and royalties as a source of fundraising, like Apache did working to reduce debt after the Callon acquisition?

EM: I think it’s part of the overall toolkit of how they can raise capital and achieve all their corporate objectives, be it a balance sheet target or otherwise.

The minerals that we bought were not all the minerals that Apache had in the Permian. It was predominantly minerals that were not under Apache operations. So, for Apache, it was not considered a strategic business.

For them, they could get what they perceived to be a very fair value and redeploy that into their operated core upstream assets. It made perfect sense for Apache to monetize.

For Post Oak, when these packages come up, it’s very unique and attractive. You are squarely in the core Midland Basin. Very repeatable, full development mode under one of the most well capitalized and committed operators.

The value allocation was mostly undeveloped, and it had some very nice line of sight towards near-term cash flow that really de-risked it for us. Even though it was a larger-scale transaction, that near-term cash flow wedge from wells that were being put online at the time of our acquisition de-risked it for us. Then it has decades of longer-term resource behind it.

CM: What’s the upside from the continued exploration of the Permian’s undeveloped zones.

EM: Being in the Permian, that’s the ultimate benefit: You have the huge stacked-pay column, and all the time operators are testing and proving out new benches. They continue to get better: More technology, better surface mapping, new completion techniques, etcetera, etcetera.

As the mineral owner, in most cases, you generally own from the surface to the center of the earth. But you underwrite whatever’s being done at the time of the acquisition, and then you get to forever be a free beneficiary of everything that industry does.

The innovation’s been awesome. Every when you think we’ve pretty much done what there is to do, you look forward three to four to five years. And minerals is a very advantaged way to be always exposed to that innovation and learning curve.

We were fortunate. I think we were at the end of the period where we could buy the [Permian] assets without having to overtly ascribe any value to those deeper benches. I think even today, nine months or so later, we probably would’ve had to ascribe some explicit asset value to those upside benches.

We’re already getting approached in conversations with a number of operators. We’re getting some lease bonus income that is all upside to our underwriting. More importantly, we’re going to see some wells getting developed.

You have Upper Spraberry coming our way. We see that as another interval that’s being developed and increasingly marching towards the assets that we bought last year.

We’re just seeing, again, always-improving well designs, recoveries, completions, the whole gamut of how we get more resource out of the system.

CM: How do you think about buying and holding interests versus deciding to sell?

EM: Generally, we prefer to buy and hold the undeveloped options. [But there are things] we can do with undeveloped.

Particularly in the Permian, a lot of times you have shallow or deeper intervals that are not held by the existing wellbores. We can lease those to third-party operators, or they could become opportunities for Post Oak’s upstream investments.

There are different ways we can partner in a synergistic way with our upstream portfolio companies. The most obvious one is just trying to layer in a minerals acquisition strategy around their areas of interest—because they’re so deep technically and commercially and they know the landowners. Obviously, we have insights as to development activity and control some of that activity.

The other thing is we have undeveloped minerals that we’ve acquired along the way—like we did last year—and we can lease those to our portfolio companies if it makes sense. We can lease them to other parties, as well. It creates a lot of ways to compound and unlock more layers of value beyond what we underwrote.

Bigger picture, we’ve been buy-and-hold. But from time to time, when the market feels ripe, we will prune more mature pieces of our portfolio. We did a bit of that a couple years ago [in 2023].

Commodity prices were fairly high. It felt like there was a lot of pent-up enthusiasm. There were not many deals in the market at that time. We looked at ourselves and said, “Maybe let’s look to pull through our portfolio.”

What we brought forth, these were relatively small pieces compared to our overall holdings. But I think it’s important when we see those opportunities to demonstrate to our investors that we’re always looking to optimize the risk-adjusted return.

And if that means pulling forward some of the tail reserves and monetizing in a constructive market, we’ll definitely do that.

CM: What interests you the most outside of the Permian Basin?

EM: We own assets in the Haynesville, the Eagle Ford, the Midcon, the Bakken, and Post Oak has upstream companies that are in some of those basins. The Utica, as well.

Haynesville is very interesting. Post Oak has a new portfolio company there. We see a lot of opportunities in the Haynesville. With the resurgent gas market, it makes it a little more transactable.

Everybody would love to buy at a very cheap gas commodity price, but the reality is most sellers are going to hold on. We feel like today is a more transactable market.

The emerging Utica oil window has been very interesting for us. We’ve been primarily focusing on that through our upstream investment, but there’s opportunities as well for the minerals team.

A couple of years ago, we saw a window of opportunity in the Eagle Ford and put a nice position together there in the core—Karnes Trough extension into Live Oak [County, Texas].

A lot of folks were just so focused on the Haynesville and the Permian at that time. But a number of folks had aggregated [in the Eagle Ford] four or five years prior. We were able to generate a nice outcome for them, but in a way that we thought we had a lot of running room left. It was still broadly undeveloped units that we acquired.

Anywhere we can find things that are slanted towards undeveloped resource, that’s our general M.O. We will pick up proved developed producing (PDP) along the way as part of packages. But we want the bulk of the value to be in the developed category.

We’re fairly basin- and commodity-agnostic. But clearly the current theme is that natural gas is coming out of its doldrums. The macro looks better with LNG. Finally, it’s not two years ago—it’s right around the corner with all that export capacity coming online.

And the Haynesville is getting extended in multiple directions, so that creates some opportunities as well.