“The oil price war and pandemic has brought unprecedented instability” – Q&A with Phillip A Gayle Jr, Andros Capital Partners

Phillip Gayle, Andros Capital Partners

Texas-based private investment firm Andros Capital Partners closed its energy-focused inaugural investment fund Andros Energy Capital at its USD250 million hard cap last week. Andros was founded in 2020 by managing partner Phillip A Gayle, Jr (pictured), who also serves as chairman of the fund’s executive and investment committees. Prior to founding Andros, Gayle was co-founder and managing partner of Millennial Energy Partners, an oil and gas investment firm and asset manager.

Private Equity Wire caught up with Gayle to find out about current developments within the energy sector, where the opportunities are and his thoughts on the new normal.

Why did you decide to launch a new energy-focused fund this year?

I don’t think anybody could have seen this pandemic coming. There are still many attractive investment opportunities out there. A lot of investors, especially in the energy sector, are calling for consolidation. But outside of a few big corporate mergers the M&A market has been really slow. In many cases, extremely high-quality assets have landed on stressed balance sheets in this market.
Was it challenging to fundraise during these last few months?

Anybody who’s raised capital for anything in any market will tell you that it can be a humbling and very challenging process. Specifically, I think it was challenging with the onset of the global pandemic and having to conduct meetings that historically would never have been conducted on the telephone or via Zoom. You would certainly always prefer to be meeting with investors in a face to face traditional business setting.
What’s in the pipeline?

We are currently working on a few things that look very interesting. The fund is exclusively focused on investments in the energy sector. Beyond that, we have the ability to be opportunistic and flexible so we think that can create some interesting opportunities that are yet to come.
What are some of the most interesting shifts going on in the energy sector at the moment?

The pandemic has adversely impacted global activity, and contributed to significant volatility in financial markets. It’s really had a negative impact on global crude oil demand. If you look back at the news from the last couple of months, as a response to the pandemic and the crisis when OPEC+ initiated discussions to lower production to support energy prices but ultimately failed to reach an agreement on oil production cuts, what resulted is what is widely referred to in the media as the Saudi Arabia-Russia price war.
If you step back, the crude oil price war and the Covid-19 pandemic really contributed to unprecedented instability in global oil prices and a significant decrease in global crude oil demand, which was really the double whammy for domestic US energy producers, as well as international energy producers. It’s affected many associated companies that operate within the sector and those that provide services to the sector.
Does that create opportunities for your fund?

I think there was already a lack of capital availability within the sector, versus what has historically been available to companies in credit and equity markets. Right now, the pandemic and the subsequent price collapse and the stress that's created, has just exacerbated that problem. It made it more extreme than it already was.
How do you think the pandemic will shape the business climate moving forward?

Companies should always be focused on efficiency. This situation has pushed the limits on what some thought was possible along that front, in a good way. I do hear a lot of people talking about the 'work from home' being part of the new normal, but I’m really not so sure about that. Personally I feel that people thrive on human connection, and at the end of the day, business is all about relationships and people. Working together to accomplish more together than they could have done alone.
I know that teams can be effective working remotely, but I don’t think they can be quite as effective as they could be together and I think that people are going to have a desire to get back to the camaraderie of the office environment. People like to be together - socially, and in business, so personally I hope we will get back to that.
What distinguishes Andros from other funds?

One of the key features is that we’re energy sector focused but besides that, from a capital perspective we have a lot of flexibility and the ability to invest capital across the sector. A lot of the larger firms might have a private equity fund and a credit fund and lots of other strategies. With this inaugural fund, we have the flexibility to pursue all of the above within the same fund vehicle. When we say credit opportunities, what we really mean is that we have the flexibility and the capability of investing across the capital structure.
We think about things from the perspective of constructing a capital solution for a specific deal or specific situation and not the other way around where you’d be trying to make an opportunity fit within a predefined structure. I believe that’s unique. I’ve spent my entire career as an energy investor, energy asset manager and an operator and so we fundamentally understand this business from the top down, bottom up, and I think that creates a differentiated perspective as investors.