EnerVest: A Cautionary Tale of Boom to Bust

Houston-based private equity firm EnerVest has experienced the energy industry’s boom to bust phenomenon firsthand as the company’s $2 billion energy fund has plunged to virtually having little value, according to a recent report by CNBC.com.

Reports indicate the firm borrowed heavily and made numerous purchases of oil and gas wells when crude oil prices were high.

Due to the fund’s financial implosion, the lenders are seeking to take control of the remaining assets.

“We are not proud of the result,” said John Walker, EnerVest’s co-founder and chief executive.

EnerVest plans to sell much of its oil and gas acreage soon as it attempts to build value while not losing ultimate control of the funds to the lenders. Sales proceeds will be used to pay back debt.

“We’re in active negotiations where we can divest assets, and that gets us back to close to compliance with the banks,” said Ron Whitmire, EnerVest senior vice president and chief administrative officer. “EnerVest is fine. We have two portfolio funds that are in need of repair, and we’re working on it. We’ve got to fix those and move on.”

The fund was established in 2012. EnerVest has several wells throughout western Oklahoma including several that are already staked.

“The lesson for everyone is that excessive leverage in a commodity downcycle can be lethal,” said Pavel Molchanov, an energy analyst at Raymond James in Houston. “That’s what led to EnerVest’s meltdown. No big surprise there,” added Molchanov.