Branching out from a family tree made up largely of medical professionals, William McMullen is an associate with White Deer Energy LP, an energy private-equity firm. He joined the Houston-based firm about seven months ago to focus on the fund’s opportunities in E&P. White Deer expects to close its second fund this month with more than $1.25 billion in committed capital. It follows upon White Deer’s $822-million Fund I, formed in 2008. The firm was co-founded that same year by Thomas J. Edelman and Ben A. Guill.

McMullen grew up in Clear Lake, Texas, within a five-minute jog of some of the biggest refineries in the world. “I always had an intellectual curiosity about energy,” he says. He graduated first in his high school class of more than 800 students and departed for Harvard University, where he majored in pre-med and economics. He opted for a career in energy finance and joined UBS Investment Bank in Houston, where he was an analyst in the global energy group, primarily focusing on midstream and master limited partnership projects.

After two years, seeking to build his knowledge of operations, he joined private-equity firm Denham Capital working almost exclusively on upstream engagements. In 2012 he joined White Deer, and today he works closely with Edelman and others on the E&P portfolio. In early February, the firm invested $50 million in Williston Basin-focused Emerald Oil Inc., Denver, via Emerald’s issuance of preferred stock.

McMullen has served on the board of Young Professionals in Energy as well as HYPE, a group he founded in collaboration with the Greater Houston Partnership, and which has grown to more than 2,000 members. In a recent interview, he discussed White Deer’s strategy and his approach to investing.

Investor What will be the make-up of Fund II, generally?

McMullen If I had to guess, the mix will be about 45% E&P and 45% services, with the rest coming from midstream deals. However, like we saw in Fund I, the exact allocation will be opportunity driven. The size of our equity checks will target $50- to $150 million, with the flexibility to go higher or lower.

Investor Does this represent a shift in focus?

McMullen With Fund I, the firm saw several investable opportunities in 2008-2010 to capitalize on shale-drilling tailwinds. But rather than taking substantial exploration risk, the firm saw a better risk-reward profile in service opportunities whose primary growth drivers were an increasing rig count.

Now there’s been somewhat of a paradigm shift, and we see an opportunity in production-related services, which have to do more with well count and overall production levels rather than just rig counts. We also believe there are synergies when you have upstream and midstream companies in the portfolio as well, and we hope that those opportunities make up a substantial portion of Fund II.

Investor How do you approach E&P investments?

McMullen When looking at a singular investment, we are initially less concerned with whether a team is oil- or gas-focused or is pursuing an unconventional or conventional play. We are more concerned with the value creation opportunity and understanding how White Deer, in the context of a partnership with a team, can create a competitive advantage to achieve outsized, risk-adjusted returns. Of course, in the context of a broader portfolio, you do worry about over-exposure to one particular region or commodity.

The thing I find so interesting about E&P investments is, whatever your risk tolerance, you can go out and find that exposure in the E&P world. For private equity, we can do everything from drilling $100-million offshore wells to drilling $200,000 vertical conventional wells. The key is putting in place a framework that first and foremost creates an alignment of interests. But also, it must appropriately capture the risk-reward profile of a potential investment. In that vein, I think what White Deer does exceptionally well is to not turn away opportunities because of where they sit on the development curve.

Investor What changes do you see coming for energy in the next year or so?

McMullen There may be some changes from the regulatory side, but from the macro viewpoint, I think commodity prices won’t change too much; the rig count will stay flat or decline slightly.

In general, we see more opportunities and niches to exploit on the E&P side, and as the focus continues from larger operators on their unconventional resources, there will be more conventional packages coming on the market in 2013. They’ve been combed over before, but with current recovery methods, operators can exploit older reservoirs in cost-effective ways to still produce commercial quantities of hydrocarbons.

Investor You believe energy holds a lot of potential for technology innovators.

McMullen Yes. From the energy technology standpoint, we are on the edge of a lot of new innovations that are just as intellectually challenging as in the medical or electronic consumer products fields. Trying to pull hydrocarbons from miles underground in an environmentally responsible way is not an easy task. There’s a real opportunity to market what we do to younger professionals who are looking for that kind of challenge.