On the first of January 2011, the entire energy group of Trust Company of the West (TCW) spun out on its own as EIG Global Energy Partners, after operating as the energy and infrastructure arm of TCW since its inception in 1982. Over that time, the energy team grew and expanded, punctuated by the most recent $4.12-billion raise for its Energy Fund XV.

Though the firm's roots as one of the original oil and gas-related mezzanine-debt players are well known after nearly 30 years of business, EIG has become substantially larger in size and scope. It has grown along with the industry. After digging through the archives of Oil and Gas Investor, we found a back issue, circa 1991, about TCW (now EIG) funding a pre-IPO Chesapeake Energy to drill wells in the Austin Chalk formation of Texas. The core of EIG's investing style has not changed since those early days; it has just expanded its capabilities.

“We think of ourselves as an energy investor that will consider any energy project or company around the globe, and we’ll also invest anywhere on the balance sheet,” says Kurt Talbot, co-president and chief investment officer of EIG Global Energy Partners.

"While most people think of us as the original mezzanine oil and gas fund, over the past 15 years we have evolved," says Kurt Talbot, co-president and chief investment officer of the firm, in Houston. He joined in 1990 and became chief investment officer in 2007.

"But 'this is not your father's Oldsmobile.' Generically speaking, we provide growth capital to energy companies and projects around the globe. We specialize in pricing risk for unique situations where the capital and credit markets struggle to do so."

Talbot says EIG favors project finance and debt-oriented structures, but has successfully done a bit of everything when the opportunities were right. The firm now has $9.6 billion under management across several active funds, including the new Fund XV. Energy Fund XIV closed in 2007.

As these funds have grown over time, they have become more exposed to international investment opportunities. Upstream opportunities represent about 40% to 50% of the investments and midstream another 10% to 20%. Some power, renewables and mining investments round out the current portfolio.

The most recent capital raise, this spring, came at an interesting period in the industry, Talbot says. At the time, there were only a handful of energy-oriented private firms that were successfully raising capital from institutions in the private market. Each of them met or exceeded their hard-cap target. First-time funds, however, have struggled to raise capital. The few private capital firms with long-term track records that did go out to the market were generally oversubscribed.

Over time, the funds have become more exposed to the international arena. Upstream opportunities represent about 40% to 50% of the investments.

In addition to many repeat clients among its nearly 350 institutional partners, EIG for the first time attracted capital from sovereign wealth funds for Fund XV, another indication of its expanding international presence.

"We think of ourselves as an energy investor that will consider investing in any energy project or company around the globe, and we'll also invest anywhere on the balance sheet," he says, citing investments in 33 countries on six continents, with oil and gas investments in 17 countries. Having grown over the years, the group is now capable of bringing hundreds of millions of dollars to the right opportunity, wherever it may be. The firm has leaned towards project finance with debt financing, but Talbot says EIG likes to come into a discussion without a predetermined route, working with the company or team to determine what best suits their needs and the particular risk profile of the opportunity.

"If we just bring money, we are not adding value," says Talbot, who believes his team should be a technically strong partner that understands the industry and its concerns as well as the credit and capital markets. To that end, the EIG team includes engineers with decades of industry experience.

Given the breadth of its platform and its singular focus on energy, EIG is often positioned to spot trends very early in a cycle. For example, it was an early mover in shale-gas plays, but also pulled back very early, despite gas prices being at elevated levels at the time.

"We haven't done a new U.S. gas drilling deal since February of 2008."

Time lines

One of the other strengths Talbot says EIG brings is commitment. For some projects, the typical private-equity time frame of holding for three to five years may be fine, but not every accretive project will fit in this box.

"Our investment style is not in-and-out. We may be in a project 10 years or more. If I'm not willing to hold the asset forever, I'm not going to invest in it."

This and the group's ability to use the most appropriate form of capital for the particular project, rather than being confined to a single type, could appeal to management teams that may have been forced to sell earlier if they had been funded in another structure. EIG formally ventured into longer-term, integrated projects in the mid-1990s. Prior to that, it had targeted each sub-sector separately.

"The transformational deal for us was in 1996," says Talbot, "when we did the Aguaytia project in Peru for a Dallas-based company. It was at that point that the group put money into developing a stranded gas field, building a gas liquids processing plant, a gas-fired power plant, and a trans-Andean electric transmission line, all in one holistic project. That highlighted the potential of investing from the perspective of an integrated global energy specialist."

This integrated focus was put to work in a more recent financing in the U.S., with BlackBrush Oil & Gas LP, one of the first investments from Fund XV. EIG placed $420 million—$200 million in common equity and $220 million in debt—encompassing both upstream and midstream aspects of BlackBrush's operations in South Texas, including a substantial position in the Eagle Ford shale.

Curt S. Taylor is managing director and leads EIG’s oil and gas team in Houston.

The company is now accelerating gas gathering, crude handling and upstream development in both shale and conventional plays. Years ago, taking the entirety of that funding might have been out of reach for EIG, but not today.

And while the Eagle Ford is on most companies' to-do lists right now, Talbot says EIG does not make a habit of jumping into trendy plays just for the sake of being there—though it is in all the major domestic plays of the past few years, he adds.

"We try and find who has the best acreage, who knows what they are doing and has a good reputation, and who needs capital. Where our investments have been is an indication of where the best opportunities have been, and where the industry needed capital." Talbot likes the U.S. E&P market, and he thinks that it naturally generates opportunity more readily than other geographies.

"The nice thing about the U.S. is that there are a lot of wells drilled. It is a large, fragmented market with lots of players. Internationally, there are fewer independent players and many different fiscal, tax and regulatory regimes. We are selective about E&P outside the U.S., but it's something we actively pursue it."

Deal size definitely has increased over the past five to seven years. "To play in the U.S. shale plays, you need to be able to bring at least a couple of hundred million dollars to the table to be relevant."

Generally, EIG's interest starts at about $75 million, with a sweet spot of $100- to $200 million, but obviously, it can invest much larger sums if warranted.

Since 2007, EIG has invested in two large enhanced oil recovery projects. One was a steam flood in California, and the other was a miscible CO2 flood in Wyoming. EIG's commitment in each project was more than $200 million. The firm drew upon its in-house engineering capability to assess the technical aspects of the EOR operations and was willing to stand behind its analysis.

Patrick H. Hickey is senior vice president for EIG, which closed its latest fund in May 2011.

Though the firm prefers project-based opportunities, often the project is the E&P company's sole asset. In such de-facto corporate finance cases, the strength of the asset is a key driver. EIG has even, on occasion, bought assets outright, as when it purchased the Pinon gathering system from SandRidge Energy Inc. in 2009.

"In the end, it comes down to what the opportunity is. We look at effort, risk and return."

The group works with all types of companies, from smaller private to larger public companies, looking for structured finance solutions. Building on its deep oil and gas roots, EIG has increasingly invested in other resources, including four separate transactions since 2007 in coal and iron ore in both the U.S. and Australia, representing an aggregate capital commitment of more than $300 million.

"Years ago, a domestic onshore deal meant leasing a thousand acres and drilling a few relatively inexpensive wells. Now companies lease tens of thousands of acres and drill entire programs of wells costing $7- to $9 million each," he says. Growing the scope and size of the business allows EIG to participate materially in today's capital-intensive projects, where the industry is creating value.