Annapolis believes that the oil & gas sector is capable of generating above average returns in the medium to long term. Annapolis targets investments in start-up and early stage exploration & production companies, primarily in the private domain. Within the broader context of oil & gas equities, Annapolis believes that stronger returns can be found within the private company sector, where some of the best and most cost effective teams in the industry choose to operate. Many highly expertised teams prefer to remain private where they can focus on maximizing long-term value. Accordingly, Annapolis sees opportunity in this more exclusive private market where a major pool of talent resides, where access to capital is restricted, and where private equity funds, like Annapolis, are the preferred source of funding. That said, Annapolis has and will continue to make investments in publicly traded companies that otherwise meet its investment criteria.
Investment Criteria
Annapolis is a fundamental value player that is focused primarily on multiple of return. As a general rule, an investment opportunity will be considered only where there exists visibility to a 2.5X – 3.0X multiple of return. Operating with a three to five year investment horizon, Annapolis seeks to invest with management teams that focus on finding and developing oil and gas reserves at the lowest possible cost. Although it prefers to liquidate investments into market strength, Annapolis places less emphasis in its investment strategy on commodity and equity market cycles, choosing instead to place increased importance on a management team's ability to add fundamental value over the mid to long term. Since inception, a consistent, intentional weighting to oil over natural gas has contributed significantly to overall returns.
In addition to visibility to a 2.5X – 3.0X multiple of return, key ingredients Annapolis looks for in investment opportunities are:
- exceptional management teams – this includes technical expertise in specific commodity and play types, coverage of all critical disciplines (such as geology, engineering, finance and land), business acumen, ethically sound business practices and commitment to sound corporate governance practices
- well-defined and risk acceptable business plans
- shareholder and management alignment – examples include material equity commitments by management, incentive compensation for management that is back-end loaded, and commonality of views on exit strategies
- proper capitalization
Deal Sourcing
Annapolis proactively originates investment opportunities using its reputation, relationships and other competitive advantages to access opportunities. Annapolis views its greatest differentiator in the market place to be its combined 65 years of pre-Annapolis leadership experience guiding business, operations, technical and financial affairs of operating oil & gas companies. Annapolis believes this unique background makes it a preferred investor with investee company management teams and other private equity funds. As evidence of this, Annapolis has successfully secured a position in most opportunities in which it has expressed a desire to invest and has been invited to re-participate with successful management teams when they re-launch for a second or third time. In that regard, Annapolis has repeat invested with successful management teams on ten different occasions. In addition to proactive origination, Annapolis also secures deal flow through invitations from investment dealers, other private equity funds, and management teams.