Thanks to commodity price changes and a flood of new money, private capital providers are exploring new areas for investing, speakers said at the 9th annual Private Capital for Energy Forum, sponsored by COSCO Capital Management and Oil and Gas Investor in Houston in June.

The risks seem to be greater now. "We spend a lot of time making a precise base case, but all we've done is create a number you won't hit. Everyone always comes in below it or above it," said Wellford Tabor, partner at Wachovia Capital Partners.

Despite this, capital providers continue to grab attention with the size of the funds they have been able to raise in the past 24 months. All agreed the size is driven by the opportunity set they see, and the continued interest of institutional investors for the energy sector.

"We are operating more internationally and that seems to require more capital, so the price of poker has gone up in this business," said Jonathan Farber, managing director of Lime Rock Partners.

The size of most exits has also gone up, said Peter Liedel of Yorktown Partners. To increase in size, companies need more money on the front end, he added, so the size of Yorktown's funding of deals keeps growing.

Despite the opportunities, there are challenges. There's plenty of competition for deals, and on specific deal pricing.

"We went public in 2004 and in the intervening years, oil has gone from $40 to $80 and back to $60, and gas from $14 to $7, so that's been a dynamic and challenging environment for us all," said John Homier, president and chief executive of NGP Capital Resources Co.

"Competition for good management teams is really up," agreed Alan Smith, managing director of Quantum Energy Partners. "Operating costs are rising at a tremendous pace and acquisition costs are pricier. We're operating under a caution flag right now."

Speakers noted that private-capital providers have extended into non-traditional areas, such as midstream and international opportunities, although the majority of their transactions still back domestic E&P start-ups with an acquire-and-exploit strategy and well-seasoned management teams.

Many said they have looked at alternative energy ideas such as ethanol and wind power, but none have been able to make a satisfactory deal yet.

The typical private-capital provider continues to expand its reach to resource plays such as shales and coalbed methane, and plays with a high percentage of proved undeveloped (PUD) locations.

"Resource plays fit nicely with project equity. It's not like being in a South Louisiana exploration play where you can get your brains blown out," said Mike Keener, managing director of Petrobridge Investment Management LLC. "And we have gone to financing development drilling for PUD-like risk."

Keener said he's seen companies develop only 25% to 30% of their PUDs and then sell, but with many new MLPs now in the A&D space, that may change. "MLPs like an asset to be more like 60% to 70% developed, so that implies a longer time frame before an E&P company can monetize."

Wachovia finds alternative energy interesting but, said Tabor, "this is a great time to be spending time with E&P teams we're already backing, to help them do follow-on deals. [Alternative energy] headlines are rushing by but in the real world, it's not going to work that way and changes will be slow in coming."

Now that the Canadian upstream business is in a tailspin, with the rig count down 50%, there may be opportunities there, said Frank Pottow, managing director of Greenhill Capital Partners LLC. "We are looking in Canada, where we think there may be some distressed assets there if someone runs out of steam."