Since last fall, my letters to investors have discussed the emphasis Five States places on the most important drivers of fund performance – sourcing exceptional assets to add to our funds and working with/through operators to manage the ongoing development of those assets. Five States investors will be pleased to learn how these efforts are beginning to bear fruit.
Asset Sourcing and Capital Deployment
As the sun begins to set on Five States Energy Capital Fund 1, and while we continue to actively manage the assets in Five States Energy Capital Fund 2, our business development focus has turned to Five States Production Acquisition Fund 2020 (“FSPA 2020”). As the name implies, FSPA 2020 represents a return to an investment strategy that is singularly focused on acquiring proved producing and non-producing reserves. The Five States team has made some outstanding acquisitions for this fund that combine a sizeable portion of low risk, proved developed producing (“PDP”) assets with a small portion of proved developed non-producing (“PDNP”) and proved undeveloped (“PUD”) reserves purchased at deep discounts. We hope to complete a final acquisition in May that will deploy all of the committed capital for FSPA 2020. When finished, we will have put 100% of the committed capital to work for investors in less than 12 months; this represents a 35% improvement in the average rate of capital deployment when compared to our last two funds. have put 100% of the committed capital to work for investors in less than 12 months; this represents a 35% improvement in the average rate of capital deployment when compared to our last two funds.
Cultivating an Operator NetworkWe continue to buildout our operator network and this work is beginning to yield excellent results. This network can let us be selective about who our partners are and allows us to define the parameters of our working relationships. While we can’t always avoid inheriting an operator or working under pre-negotiated joint operating and joint development agreements, by building and maintaining a strong operator network, we give ourselves options and leverage when negotiating future acquisitions and managing producing properties.
Environmental, Social and Governance
In this issue of The Producer, investors may notice a new feature – a section on Environmental, Social and Governance (“ESG”) reporting. What is ESG? ESG broadly covers topics of corporate sustainability and social responsibility. There is no defined “standard” of ESG performance, so our feature will begin with definitions and related background information. Because Five States has always attempted to be an excellent “corporate citizen”, the concept of ESG is not foreign but highlighting our actions is new.
Don’t look now but…
Five States investors will be interested to learn of two new funds that will be offered this summer. Our next oil and gas production fund, FSPA 2021, will be launched first, followed shortly thereafter by our first fund focused on renewable energy. Unlike most of our prior funds, the renewable energy fund will not be a blind pool; it will be for a defined project with very rapid capital deployment. Stay tuned for upcoming announcements about both of these funds.
It is a very exciting time to be working with Five States Energy Company and Five States Energy Capital. We thank you for your interest in Five States funds and for your ongoing confidence in the Five States team.
John Kiser