Temasek Tracking - Venari Resources, yet another failed investment in oil company

 

2011   Founded
2012  1st funding round US$1.1b.
2013  2nd funding round US$1.3b
2019  Assets sold to Talos Energy
2020  Ceased operation

Brian Reinsborough is a 17 year E&P (exploration & production) vet with Nexen Energy. He set up Venari Resources in 2011 whose mission was basically to search for oil in the oil-prone subsalt region in the Gulf of Mexico's deep waters. His model was not a full-fledged E&P company which is a very capital-intensive part of the business. Venari merely hunts for the oil and will partner the big boys Chevron. Marathon etc. for development and production.

2010 was the year of the Deepwater Horizon disaster that caused a moratorium on further oil exploration in the gulf of Mexico. Reinsborough went against market sentiments to start his company at a time when E&P was dead in the Gulf. He felt the moratorium gave time to study the area and new seismic scan technology is allowing better data collection. Equipment and data are levelers. All companies have that. The difference is the men interpreting the data. He assembled an expert team, the ones with instincts in the mold of wildcatters of the past, many from his old firm Nexen. Reinsborough wanted a small team that is nimble so that decision making will be quick. Lastly, he needed a grand slam initial funding so that he has the attention of the big boys when he build development and production partnerships.

Reinsborough started in a tiny office, somewhat like an incubator, of Warburg Pincus, a notable private equity firm. With no money, no assets, and no company, but just a business plan on paper, and going against the industry wisdom of the time, Reinsborough convinced Warburg Pincus, Kelso & Company, Temasek and The Jordan Company to put in US$1.1B in 2012. The following year, Venari was able to attract additional funding of US$1.3B from new investors which included Blackrock Group and GIC.

By 2014, oil prices collapsed. The price of oil did not affect Venari at the time as it was not involved with well operation and production. It was only involved in search operations. In 2014, Venari saw no problems as its wells were not primed for production till 2019/2020. So the company went on to gain fame as it discovered several blocks with substantial reserves. It had built up very significant inventory and leaseholds. Venari had in fact tied up with Chevron Corporation, ConocoPhillips and Anadarko Petroleum for development and production. 

But the prolonged and deeper downward pressure on oil price continued. When it went below US$60 per barrel, the bottom fell out. This price level is the break even for deepwater oil production at the time. Private equity funders are an impatient lot. In times of a prolonged depressed price in the industry, very rarely will they accept the strategy of consolidation and sitting out the cycle. Many E&P outfits funded by private equity folded. Oil companies with deeper pockets and longer term strategies swooped up distressed assets at a fraction of its cost. In 2019 Venari sold its assets to Talos Energy for US$5,000,000, what Singaporeans would call peanuts. Early this year, Venari ceased operations.

It's always been said of GIC having a lower risk appetite than Temasek and thus CPF money are relatively in safer hands. It's probably a fallacy. GIC have been participating as co-investor of Temasek in many risky startup companies. Venari is just an example. 

In Venari, Temasek demonstrated the courage to invest against industry trend. There is nothing intrinsically wrong with this as long as their expert interpretation led to a belief there is an opportunity to be seized. As long as it was an educated guess, the ability to hold contrarian views is a strength. Had there been no catastrophic collapse of oil price, which no one in 2012 could foresee, Venari was well-positioned to generate astounding capital gains. The investment can not be questioned, but the divestment, one may differ. What a waste selling off the assets at terribly distressed price if oil price surge again. It is now about US$40/barrel. What might it have been if there were no pandemic. Whatever the case, oil is a scarce resource and it is an existential commodity. The E&P business is about surviving with the commodity cycles, sitting out the low and extracting profits on the high. Its about sniffing out good sites, hitting some loosing wells and some winning wells and hoping the winners outperform and absorb the loosers. It's putting huge capital for the long haul in an extremely high risk-high ROI gamble. If one looks at the big boys, the perspective is very clear. Chevron Corp is 141 years old, Royal Dutch Shell is 113, Mobil is 109, Total is 96 and even Petronas is 46. Then again, Temasek and GIC could have been dissenting voters in the decision to sell.

Of the US$2.4B total funds, how much was provided by Temasek and GIC is unknown. It is possible the duo pumped in US1B in total. They lost the bet and money is gone.

-----------------------------

Temasek's investments in oil companies has'nt been rosy. Check out other companies I have covered :   FTS International, Chesapeake,Cheniere,  Kunlun Energy,  Orchard Energy, Seven energy    

Check out Portfolio Compilation

View an attempt to list Temasek portfolio with links to microblogs of troubled assets such as these. It's a work-in-progress that gets updated as and when they are published. If you wish to be updated on new microblogs, simply submit your email in the box on the top, right. Thank you.