In 1988, Joe Foster, then the CEO of Tenneco’s oil and gas business, was out of a job.  His parent company had sold his well-functioning division in pieces for approximately $7 billion to a diverse group of international oil and gas companies.  Undaunted, Foster and twenty-two of his fellow executives pooled $3 million of their severance money and started Newfield Exploration.  Aided by an incremental $3 million from friends and family and another $3 million from the University of Texas Endowment Fund they promptly drilled two dry holes and had “issues” with a third well in the shallow waters of the Gulf of Mexico.  

Entrepreneurial efforts are not for the faint-hearted or for those without great perseverance.  Despite the difficult start, Foster led his team forward raising $20 million of new funds from private equity providers and more funds from other university endowments to finance their next wave of drilling activity.  With this added capital, Newfield Exploration hit its stride with a string of successful discoveries and began a steady climb to success.  Newfield Exploration is a wonderful case study of successful entrepreneurship that brought together great leadership, strong execution skills, and sufficient risk capital to build a company of scale.  

While thousands of oil and gas companies have been started in North America since Colonel Drake’s famous oil well in Titusville, Pennsylvania, in the mid-19th Century, most have financed their early days by raising money locally to pull together a grubstake to buy acreage and drill a few wells.  Successful results meant that you had sufficient credibility and cash flow to keep going.  For a small handful added financing came from a few risk tolerant endowment funds or wealthy family offices.

However, the upfront risk capital required to launch, grow and nurture an exploration and production company to reach sufficient scale has grown substantially over the past twenty-five years.  Everything has gotten much more expensive – acreage, people, data, drilling rigs, steel pipe, deeper and more complicated wells, new drilling technologies, etc. – and the bar that defines “scale” has risen to a level where approximately one billion dollars of value has become the threshold to allow access to much lower cost capital either from a corporate acquirer or the public markets.  For most E&P entrepreneurs, these capital needs can no longer be met by passing the hat around the neighborhood.

During the last year, private equity