AUSTIN, Texas—Private equity (PE) was largely the engine that made the Delaware Basin run, and for the most part, it got extremely good mileage.

The time for a tune-up is coming, though.

In the pre-Permian land rush, PE-backed teams bought acreage for $4,000 an acre and flipped it later for up to 10 times that amount as large E&Ps hunted for acreage. Many of the Delaware acquisitions in 2016 and early 2017 have featured public companies purchasing PE-backed management teams.

With their billion-dollar bankrolls, PE executives are akin to talent scouts. The deals they’ve generated in the Delaware and Scoop/Stack have come from an ability to ferret out bargain acreage while managing a bullpen of ace oil and gas operators.

Spotting a good deal is increasingly important as the industry begins a gradual A&D shift from the hottest plays. One opportunity: large companies are beginning to dispose of legacy assets once thought untouchable. And pockets of popular basins may yet have secrets to yield.

E. Murphy Markham IV, a managing partner at EnCap Investments LP, said traditionally PE firms have had two strategies: lease and drill or acquire and exploit.

“Prior to this downturn, I’d say 90% of our capital has really been focused more on the lease and drill,” Markham said.

Markham spoke alongside Garry Tanner, a partner at Quantum Energy Partners, and Charles Cherington, co-founder of Argus Energy Managers, at Hart Energy’s Executive Capital Conference on April 18.

Since the downturn in 2015 and 2016, however, EnCap’s acquisition activity has stepped up, overshadowing the lease and drill model.

“There’s been a lot of legacy assets that have been for sale and even in these basins in the Permian and the Stack, private equity has really been active on both sides,” he said.

Many of the sellers are large, financially strong companies selling not because of distress but to develop their core assets “with half of the cash flow as a result of commodity prices dropping,” he said.

That’s provided an opportunity for private companies to step in and buy legacy assets—“assets that probably wouldn’t have been on the market had it not been for the downturn in commodity prices,” he said.

EnCap has made deals with Pioneer Natural Resources Co. (NYSE: PXD), Newfield Exploration Co. (NYSE: NFX), Energen Corp. (NYSE: EGN) and Anadarko Petroleum Corp. (NYSE: APC) for key positions.

Tanner said that with the amount of opportunities for companies, “everyone from ExxonMobil on down is going through portfolio adjustments. That’s popping out a lot of assets that you would have thought would never have been sold.”

At the end of 2015, for instance, Quantum backed a deal to purchase a 130,000-acre position from ConocoPhillips (NYSE: COP) in East Texas.

But after the successful run in the Delaware, the challenge is where to go next.

“The tough part now is we were getting into these plays when these prices were pretty cheap,” Tanner said. “We were buying at $2,000 to $4,000 an acre, and selling at $40,000 is a nice thing, but now it’s a little more difficult to afford to live in the neighborhoods you’re selling out of.”

But recognition is all part of the strategy that PE firms rely upon.

In one case, Tanner said, Quantum went into an area of the Delaware where roughly 20 wells had been drilled by a handful of operators that had resulted in mediocre results.

“They were marginal producers, uneconomic, and the industry had pretty much written off that part of the Delaware,” he said. “This is right along the river in Reeves County, Texas.”

Tanner’s team looked it over, did extensive geological and petrophysical work, and decided the rock looked “every bit as good as the stuff people are drilling on the other side of the river.”

Conclusion: “We think it’s the operator, not the rock,” he said.

Quantum paired with a Midland, Texas, company and began an acquisition program, making small deals and swaps, which built up an acreage position of roughly 25,000 contiguous acres.

“We have four rigs running right now. And we’re drilling wells that look every bit as good as the stuff on the east side of the river,” he said. “All of a sudden that acreage is now moving toward the $40,000 an acre value, where we were picking it up for $2,000 to $4,000.”

Tanner said the difference was simply execution.

“That was just a different operator coming in and bringing that better execution capability,” he said.

The key to success, Markham agreed, is simple—successful management teams.

“It’s partnering with quality management teams, providing them with growth capital and then sitting on boards and assisting on the strategic advice and risk management,” he said.

In 2016, Markham said EnCap sold more than $11 billion of properties and assets while investing $4.6 billion—“probably about twice what we’ve done in the past.”

Quantum, which exclusively invests in energy, has its own technical teams that emphasize building up companies rather than buying and flipping assets.

“When you think about execution, we like to drill wells,” Tanner said. “Two-thirds of my experience has been on the industry side. I’ve spent 20 years at ExxonMobil and other places and 10 years in private equity. It really makes it easier to partner with folks when you’ve kind of been there and done that and lived in their shoes.”

The next round of investments may well target old plays that are being reinvigorated, especially since entry prices to other plays are so expensive.

The Haynesville, for instance, has seen a rebirth after years of being virtually forgotten.

“For a number of years, nobody was really drilling in the Haynesville, and recently people [started] drilling there and seeing incredibly better wells,” Tanner said. “That’s the kind of thing we’re looking for is reinventing plays that may be are off the radar.”

EnCap is also looking at minerals businesses and has acquired more than $750 million in rights through various companies.

“We’re in the process of buying quite a bit of mineral again and on very focused activity in some of these key areas,” he said.

And its portfolio companies are taking advantage of legacy fields that haven’t competed well for capital in larger companies. EnCap’s $310 million deal for Newfield’s Eagle Ford assets was born from Newfield wanting to invest in the Stack.

“As a result, we were [able to] get in and do the acquisition,” Markham said, noting that the acreage is about 96% HBP, produces 7,000 barrels per day and is 80% operated.

But the opportunity is to upgrade what Newfield was already doing.

“Newfield hadn’t really gotten into the later generation completion techniques,” he said. While other operators have graduated to next generation completions, Newfield had not.

“We were able to buy it … with the strategy of developing generation four and five,” Markham said. “Plus we saw additional zones that were prospective. We didn’t have to pay for it but there’s significant upside.”

Darren Barbee can be reached at dbarbee@hartenergy.com.