Upstream start-ups take heed. The energy private-capital markets are off to the races-and the E&P-commitment track is fast. Case in point: within just 10 days this May, Greenhill Capital Partners, a New York-based private-capital provider, staged its own Triple Crown by announcing a trio of equity commitments to private operators. In a bit of an understatement, V. Frank Pottow, a managing director with Greenhill Capital, says, "We're pleased with the current investment environment for oil and gas deals. Right now, it's a good time to be backing managements with proven track records, particularly those with attractive opportunities for development and exploratory drilling." Nearly concurrent with the closing of its $875-million Fund II, Greenhill Capital picked up the lion's share of a $70-million private-equity commitment to Kansas City, Missouri-based Genesis Gas & Oil LLC, most of the $19-million backing for New Orleans' CLK Energy Partners LLC and the bulk of a C$17.8-million (US$15-million) commitment to Energy 51, Calgary. In all, the firm committed an aggregate $80 million to these new upstream ventures. In its earlier $423-million Fund I, it committed $120 million to 10 private producers. "The three latest commitments are consistent with our Fund I investment strategy in that we're betting the jockey, not the horse," says Pottow. Translation: Greenhill focuses primarily on management, not just a particular set of assets. In the case of Genesis, which seeks to acquire and exploit coalbed-methane (CBM) and tight-sand gas assets, primarily in the Rockies, its five-member management team has a lot of exposure to unconventional-resource plays plus a record of generating high returns and keeping finding and development (F&D) costs low. "Prior to starting Genesis, we were involved in two CBM projects in the Cherokee Basin in Kansas and Oklahoma, one in Colorado's Raton Basin, and tight-sand gas drilling in Wyoming's Green River Basin and Colorado's Piceance Basin," says Jeff Mohajir, Genesis president and chief executive officer. "In those projects, we managed to hold our average F&D costs at 50 cents per thousand cubic feet (Mcf) through drillbit growth, and that's again our goal at Genesis." Guiding CLK Energy Partners, which is focused on drilling onshore Louisiana and the Gulf of Mexico, is president and chief executive officer Rick Gardner. He's credited with helping Transco and Freeport-McMoRan find more than a trillion cubic feet of gas in the Gulf of Mexico. CLK chairman Rob McKee, meanwhile, formerly steered worldwide E&P operations for ConocoPhillips and was recently senior advisor to Iraq's oil minister. Says Pottow, "Louisiana can be a challenging place in which to operate. But if McKee can handle a hot spot like Iraq, I figure he can handle finding oil and gas in Louisiana." With so many royalty income trusts in Canada, more emphasis is now being placed by these entities on shareholder distributions and less on exploration drilling, the managing director observes. "Energy 51's Paul Watson, Randy Buchanan and Gary Browne-seasoned junior-oil executives-are looking to partner with these trusts to bring more of an exploration and drillbit focus to their operations." The economics for gas drilling are more attractive today than two or three years ago. "When natural gas sold for $3, an operator got to keep about $1.50 per Mcf in cash flow after royalties and operating costs," he explains. "Meanwhile, finding and development costs were about $1. So his investment recycle ratio (revenues minus royalties and operating costs divided by F&D costs) was 1.5. This means that for every $1 he invested to generate an Mcf of gas, he was getting back $1.50." Today, however, with gas selling for $6.50, a producer gets to keep around $4 per Mcf in cash flow after royalties and operating costs, says Pottow. "So even with higher F&D costs of $1.20 to $1.50 per Mcf, his investment recycle ratio is now about 3.0. "Since a producer can additionally sell forward his production in the futures market, it's clear that drilling can be economically very attractive and should be a component of any strategy for growth and achieving high returns."