The decline of Enron Corp. (NYSE: ENE) is a loss-temporarily or permanently-of a major source of capital to the E&P sector of the oil and gas industry. The company's Energy Capital Resources Group, part of its Enron North America business unit, had invested nearly $5 billion in E&P companies in the past 10 years. Some of the funds came from the California Public Employees Retirement System (Calpers) as well as from various banks. The investments were made through project-finance, equity, mezzanine-debt, senior-debt, convertible-debt, volumetric production payment and other instruments. Because Enron's access to capital is now limited and its creditworthiness dubious, new investments by Enron ECR are unlikely in the near future. All of the staff was let go in December, along with approximately 4,000 other Houston-based employees, except for Jesus Melendrez, a vice president, and a couple of technical-support employees who are acting as caretakers of the group's investment assets. C. John Thompson, vice president and comanager, is putting together a new firm that will offer capital products similar to those of Enron ECR. He hopes to recruit the bulk of the former capital group's talent. Enron ECR has had a huge presence in the business, and how its stakes in E&P companies will be handled in bankruptcy court remains to be seen. Some recent investments as of June 2001 include: • Crescendo Energy LLC Co., Midland. $35 million in two transactions. The start-up venture capital is for the pursuit of low-Btu gas in the Rockies. The investment was made in June 2000. • Westwin Energy LLC, Midland. Also receiving start-up venture capital, this company is acquiring and exploiting Permian Basin opportunities. The former managers of Arco Permian formed it in the fall of 2000. The investment deal closed in October 2000. The amount invested is not available; however, Enron ECR owns 90% of the company. • Preston Exploration LLC, The Woodlands, Texas. An investment of $71 in two volumetric production-payment transactions will be used to acquire additional reserves. The deal closed in December 2000. • Nutech Energy Alliance, Kingwood, Texas. A second-stage funding, the investment is to further develop Nutech's proprietary log-interpretation software. The deal closed in February 2001. The amount invested has not been disclosed. • KCS Energy Inc., Houston, (NYSE: KCS). $178 million. The funding was for a corporate recapitalization, helping KCS emerge from bankruptcy. The deal closed in February 2001. Enron ECR's highest-profile investment presently is its 96% stake in Houston-based Gulf of Mexico and Gulf Coast producer Mariner Energy Inc. Mariner was formed in 1996 with Hardy Oil & Gas USA Inc. assets when Hardy management, using Enron capital, bought the U.S. company from its U.K. parent, Hardy Oil Plc. Mariner recently experienced a transition too. Scott D. Josey, Enron ECR vice president and comanager with Thompson, took over Mariner as chairman, and Allan Keel, another Enron ECR vice president, was made president and chief operating officer. Thompson is not new to setting out on his own. He and Josey, after leaving Enron ECR once before, formed Sagestone Capital Partners, which managed private-institution investments in the oil and gas business, primarily for The Common Fund. They returned to Enron in 2000 as the conglomerate committed to rebuild its energy-capital business. Some of Enron ECR's past investments had proved to be failures, such as in Dallas-based Queen Sand Resources (now known as DevX) and Midland-based Costilla Energy. Commodity prices had gone south in 1998 through early 1999 and overlevered companies went with them. An Enron ECR success, however, was its investment in Midland-based Titan Resources, which is now known as Pure Resources (NYSE: PRS). Mariner has been successful too, but unable to go to the public-equity market yet. It was scheduled to go public in the fall of 1999, a month after Spinnaker Exploration (NYSE: SKE), as an exit for Enron ECR, but trouble with Spinnaker's initial public offering (priced at $14.50, departing from an original plan of $16 to $18) made the Mariner offering team retreat from the table instead. Enron ECR had hoped to raise $200 million in the Mariner IPO. Mariner reported Enron owes it $26 million in production hedges through 2003 and $5.5 million for production sold in November. Several other E&P companies also issued press releases revealing their exposure to the Enron debacle. There are other integrated-energy companies in the business of providing capital to E&P companies. Duke Energy Corp. (NYSE: DUK) has opened a Houston office of Duke Capital Partners. EnCap Investments, Houston, is part of El Paso Corp. (NYSE: EP). Aquila Energy Capital Corp. is part of Aquila Inc. (NYSE: ILA), which is being rolled back into UtiliCorp United Inc. (NYSE: UCO). And Mirant Americas Energy Capital LP, Houston, is part of Mirant Corp. (NYSE: MIR). Maybe Enron will rejoin them after the dust settles. Meanwhile, watch for a new capital source from Thompson, and for former Enron ECR staff members to find new homes with that or other oil-industry investment firms. -Nissa Darbonne