Preference for Passive, Scalable Investments

Investing ‘Generationally’: The Family Office View of Oil and Gas

By Deon Daugherty, Hart Energy

Generational wealth has long been invested in oil and gas, but it has generally come from families whose fortunes were found in the field. That’s changing. Or, it’s branching out.

And old money earned in other industries is making its way to oil and gas now more than ever.

In some cases, it starts with a handshake.

Witt Stephens founded Stephens Inc. in 1933, betting on municipal education and Arkansas highways bonds.

“That was really the first slug of capital that came into the family,” John Stephens, Witt’s grand-nephew, told Oil and Gas Investor. “[The bonds] were trading at pennies on the dollar during the Great Depression. He bought them in 1933, they paid off in ’43, so he used that initial source of capital to build a business in a municipal bond space.”

Witt made other investments in the years that followed. Meanwhile, he saw the potential in his brother, Jack, who was 16 years younger than Witt, and sent him to college. Jack—John’s grandfather—graduated from the U.S. Naval Academy in an accelerated class in 1946, then went to work on Wall Street. (The academy named the football field at Navy-Marine Corps Memorial Stadium “Jack Stephens Field” after Jack made a donation in 2003.) Jack returned to Arkansas on a handshake deal with his brother, which made him a 50-50 partner in the municipal bond company that Witt had built.

The firm made its first oil and gas investment in 1948. Inside a decade, the industry became a business unit of the firm, and in 1956, Witt began to manage those investments and others, such as real estate. Still a partner with the original firm, that branch—Stephens Natural Resources—remains in business and the founder’s heir, Witt Stephens Jr., is chairman of the board.  

Stephens Inc. continues to invest in oil and gas through its family office, Stephens Capital Partners. The industry represents about 25% of the portfolio. 

“We all agreed that felt right,” John Stephens said. “I would add that, given the themes we’re seeing and our conviction in the space as an investment area right now, I think that could grow over the next five to 10 years as a portion of our overall portfolio.”

John Stephens is a managing director of the investment banking group, working in family advisory services where he specifically covers family offices.

“And the best calls we can make is when we call people and say, ‘We’re excited about this, we’re doing it ourselves. Would you like to come into a deal with us?’ That’s what’s happening in the oil and gas space,” Stephens said.

Stephens has long been keen on the private placement of equity, said Keith Behrens, managing director and head of the firm’s energy investment banking group.   

“Historically we would place that capital with private equity funds like a Blackstone or an EnCap. [But] during COVID, and even a little before COVID, that investment activity with private equity funds slowed down. The funds were holding onto investments that they couldn’t sell. They had a hard time raising capital,” he said.

Brad Nelson, a managing director in Behrens’ group, said that particularly the private equity groups along the coasts were “really not investing in conventional hydrocarbon transactions anymore, or certainly had reduced the amount and the number of deals” under consideration.

“The important part of that from our perspective was that it had a meaningful impact on valuations. And so when you have that amount of capital, and pretty much leave the space, valuations came down, which I do think was impactful on families that eventually came into the sector—and are still looking at opportunities in the sector,” he said.

Continue reading here: HartEnergy.com