Former Warburg Pincus Executives’ New Firm Seeks $750 Million for Oil-and-Gas Bets
David Habachy and David Krieger recently formed Covalence Investment Partners, which aims to raise a debut fund, marketing documents show
Covalence Investment Partners, a new firm founded by two former executives of Warburg Pincus, is seeking $750 million to invest in the oil patch, pitching its debut fund as an opportunity to buy mature fields at bargain prices.
David Habachy and David Krieger, who launched Covalence early this year, both previously worked as managing directors at Warburg and led investments in oil and gas for the New York private-equity firm, according to a fund-marketing presentation viewed by WSJ Pro Private Equity. Warburg has sold several of its oil-and-gas holdings in the past year or so, as it retreats from the sector.
The new Houston-based firm is marketing its first fund, Covalence Equity Income Fund, to focus on buying oil-and-gas fields that have been in operation for years across several regions in the U.S. The fund’s 15-year term, which is longer than the 10-year duration of most private-equity vehicles, will help Covalence match its investments with the remaining life of the acquired assets, according to the presentation.
A history of poor returns in the shale industry—combined with concerns about the future value of the assets as the world shifts away from fossil fuels—is leading investors in traditional energy subsectors to favor fund strategies that generate the bulk of their profits from dividend payments rather than asset sales, said Al Carnrite, a managing director in the U.S. energy practice of consulting firm Alvarez & Marsal. That’s increasing the popularity of strategies that target so-called proved, developed and producing, or PDP, energy assets, he said.
“PDP strategies got rejuvenated about three or four years ago and part of that was driven by the downturn in oil prices,” Carnrite said. “Oil-and-gas investors are saying, ‘I want distributions. I don’t want my money locked up for years in the hope that there’s going to be some kind of transaction.’”
A sharp decline in oil prices that started in 2014 hit many private equity-backed producers in the following years, and Warburg had its share of losses. Sheridan Production Partners II, which was part of a broader business that the private-equity firm had backed in 2006, filed for bankruptcy in 2019 after raising $1.8 billion, mostly from institutional investors, WSJ Pro Bankruptcy reported at the time.
More recent Warburg investments in the sector have fared better. For example, oil-and-gas producer Ensign Natural Resources sold its assets in South Texas’ Eagle Ford shale region to Marathon Oil for $3 billion. Warburg backed Ensign in 2017 and helped it expand through acquisitions. In 2020, Warburg sold data-analytics company RS Energy Group to peer Enverus for about $1 billion. RS Energy’s annual recurring revenue increased nearly fourfold during Warburg’s four-year ownership, according to Covalence’s investor presentation.
Warburg Pincus Energy, a $4 billion oil and gas-focused fund that Warburg wrapped up in 2014, recorded a 3.68% internal rate of return as of the end of last year, according to a document from the Public Employees’ Retirement Association of Colorado, which committed $50 million to the fund.
Covalence sees opportunities to buy assets valued at 2.5 to 3.5 times their cash flows, well below the up to ninefold multiples recorded in 2016, at the peak of the shale boom, the marketing presentation showed. A shortage of capital in the sector is depressing asset prices. But sellers are finding deal conditions acceptable after a recent period of relatively stable oil prices, Carnrite said.
“Deals are obviously getting done, so there are buyers and sellers that are able to negotiate prices,” he said.
Deals among U.S. oil-and-gas producers totaled $46.6 billion across 61 transactions through September, compared with $58 billion across 160 deals in all of last year, according to Enverus. Two large deals announced in October—Exxon Mobil’s nearly $60 billion agreement to buy Pioneer Natural Resources and Chevron’s $53 billion takeover of Hess—dwarf the recent statistics. Additionally, Occidental Petroleum this week agreed to a $10.8 billion deal for CrownRock, an oil-and-gas company backed by Lime Rock Management that operates in West Texas’ Midland basin, which is part of the broader Permian basin.
The wave of consolidation sweeping through the U.S. shale industry creates opportunities for investment firms, as energy companies often shed less-desired assets after mergers, according to Carnrite and other industry consultants.
Covalence’s presentation showed a pipeline of four potential “near-term” transactions worth a total of $390 million that the firm has already identified. They include two public operators selling noncore oil fields in the Eagle Ford.
As opportunities abound, perhaps the main hurdle facing private-equity firms looking to invest in the oil patch is attracting investors reluctant to back fossil fuel-related assets, the consultants said.
“Many limited partners of private-equity firms have clearly signaled that they aren’t interested in oil-and-gas investments,” Carnrite said. But he added that some of them appeared to be changing their mind, as indicated by several specialist firms that recently raised new funds.
“The best way for the industry to attract investor capital is to continue to generate the great returns we have seen [in] the last couple of years while maintaining capital discipline,” he said.
SEC to vote on move to bolster resilience of $26tn Treasury market
Plan to force more trades through central clearing covers fewer hedge fund bets than initially proposed
US regulators on Wednesday are expected to approve a move to force a bigger slice of trades in the $26tn Treasury market to be cleared centrally, in a landmark reform aimed at bolstering the resilience of one of the world’s most important financial markets.
The Securities and Exchange Commission will vote in Washington on a proposal that could require an additional $1tn of daily trades to be handled by an independent clearing house. That would mean market participants had to stump up collateral to back those positions or cap the amount they can borrow in so-called repo trades.
US regulators want to shore up the market — which sets the price of US government debt and is the reference point for assets across the globe —following repeated bouts of instability over the past decade, most notably the “dash for cash” that sent Treasuries into freefall at the start of the Covid-19 pandemic in March 2020. Then, the Fed was forced to buy large amounts of Treasuries to steady the market.
The SEC framework will bring the Treasury market more into line with equities, futures and swaps, where clearing is common. A clearing house stands between a buyer and seller and prevents failed trades from cascading through the market. Only 13 per cent of Treasury trades are fully cleared, while 19 per cent have some part of the trade that is cleared centrally, according to the Treasury Market Practices Group.
Since the financial crisis, hedge funds and high-speed traders have become increasingly dominant in Treasury trading, and many settle their trades bilaterally, rather than going through a central clearing house.
The new regulation could help rein in the proliferation of highly leveraged bets on the Treasury market placed by hedge funds in recent years, which has come under increasing scrutiny from regulators and central banks this year. SEC chair Gary Gensler has also undertaken a broad push to revamp rules for trading, with an agenda that includes more oversight of lightly regulated entities such as hedge funds and proprietary traders.
However, the final rule under discussion by the SEC on Wednesday, will cover fewer Treasuries trades than proposed in a draft version published in September last year.
The final rule applies particularly to the repo market, where banks and investors borrow cash for the short term, offering high-quality collateral such as Treasuries in return, and to some cash trading. Hedge funds and leveraged traders will not be required to centrally clear deals in the cash market, as initially proposed, following pushback from the industry.
Despite the exemption for some cash trading, the revised proposal could capture an additional $1tn of daily repo and reverse repo trades for clearing, according to estimates from DTCC, the main US clearing house for Treasuries.
Many market participants have worried that the reforms could mean that broker-dealers would be required to find extra margin to back their customers’ trades when the market is at its most stretched. To offset those concerns, the SEC is proposing to tweak its rules to ease some margin requirements.
If adopted, the SEC aims for the new rules to come into effect in December 2025 on the cash side and June 2026 on the repo side.
Worldcoin adds integrations with Minecraft, Reddit, Telegram, Shopify and Mercado Libre
Expands offer eye-scanning verification services to Mexico and Singapore
Worldcoin, a crypto project co-founded by Sam Altman, said it now supports integrations for its World ID with Minecraft, Reddit, Telegram, Shopify and Mercado Libre. The company already supports integrations with Discord, Talent Protocol and Okta’s Auth0.
Launched to the public about four months ago, the protocol recently was updated to World ID 2.0, which, the company says, makes it easier to distinguish between bots and “verified humans” online.
“It’s a much easier way for developers to build integrations,” Tiago Sada, head of product for Tools for Humanity and a core contributor to Worldcoin, told TechCrunch. “We’ve rebuilt the way it works.”
The new integrations will, for example, let Reddit moderators give special permissions to those who use their World ID “so they know you’re not spamming,” Sada said. Or, Shopify store owners can use World ID for fraud prevention or one-time promotions.
“This is not just about the first wave of applications, but a new developer platform where developers can build,” Sada said. “We’re excited to see what people come up with […] the best ideas come from developers.”
Three new types of World IDs
The company has also created three different authentication levels: The “casual” or “World ID device level” involves downloading the Worldcoin app and creating a World ID. You don’t need to use the Worldcoin Orb to scan your irises to prove you’re a person, and only have to make a profile. The “standard” or “World ID Orb” level involves creating a profile and also getting your irises scanned by one of the company’s Orbs to verify your identity. “High” or “World ID Orb+” security requires you to also use facial recognition to secure the app besides the previous two steps, Sada said.
When creating a World ID, users don’t need to provide their real name or identification, Sada said. “You can use it completely anonymously; the only thing you’re doing is proving you’re unique.”
It’s not bulletproof, though. You can use one World ID per device, so if you have a phone and an iPad for example, you can create two World IDs. You can do this until you choose to get scanned by an Orb, after which you can only have one ID.
“There’s use cases where it’s not sufficient,” Sada acknowledged. “It’s not perfect, but it could help prevent people from abusing systems, like voting 100 times on a poll, or having hundreds – if not thousands – of accounts,” he added.
Expansion plans
Additionally, Worldcoin is expanding its onboarding operations in Mexico and Singapore. Sada said the company is also working on bringing it to more countries in Asia. “The goal is to have Orbs available in any country to sign up […] They’re two more countries on a long list [of countries]; it’s going to take time.”
While the crypto project is steadfast in pushing its growth forward, it has also faced some headwinds. Earlier this year, Kenya banned Worldcoin from scanning any more of its citizens’ eyeballs on concerns that the company failed to inform users about the data security and privacy measures it had taken.
Separately, some critics have alleged the company targets developing countries and its residents since it gives most participants (outside the U.S. and some other countries) 25 WLD tokens, worth roughly $60.5, in exchange for signing up.
But this hasn’t stopped growth. Almost 5 million people globally have a World ID, and about 2.6 million people have scanning their irises with its Orb hardware to verify their identities. In the last 7 days, over 100,000 people have made new accounts, according to its website.
“Five million people is still very far away from the world [adopting it,]” Sada said. “So [2024 is] about improving things, but also getting to all of the people around the world.”