$450 Million Fund for Finding Natural Gas

Avista Capital Partners is wasting no time putting capital to work from its still-open second fund.

On the heels of committing to one of the largest buyouts of the year, Avista has teamed with others to form two natural-gas exploration companies with total equity capital of up to $450 million.

The New York firm has partnered with energy-focused EnCap Investments L.P. to launch Royal Offshore, a Corpus Christi, Texas, company that explores and produces natural gas in the region around the Gulf of Mexico. Avista, EnCap and Royal's management together have committed $350 million of capital, with Avista and EnCap equally splitting a majority interest, said Jeff Gunst, an Avista principal.

The investors are betting on Scott Smith and Bill Gregorcyk, former executives of Royal Production Inc., also based in Corpus Christi. Smith and Gregorcyk had purchased blocks of property in the Gulf region and were seeking an equity sponsor. The duo retained energy-investment advisory firm Parkman Whaling LLC to assist it in the process. Avista and EnCap, which had invested in deals together in the past, teamed up again for this deal.

(This story originally appeared in LBO Wire, a daily email newsletter published by Dow Jones & Co. that covers news about venture-capital and start-up companies.)

In a second energy deal, Avista is forming another gas exploration and production start-up - this time across the pond. The firm has committed to provide up to $100 million to the London venture, known as Hansa Hydrocarbons L.P., which primarily will acquire and develop natural-gas properties in the North Sea and Northern Europe.

Avista had been looking at natural-gas opportunities in the North Sea for some time, attracted by a growing regional demand for gas which is outstripped by supply, Gunst said. That region resembles the Gulf of Mexico "10 years ago," with players "transitioning from (oil) majors to smaller companies" as available properties are deemed too small by bigger corporations, he said.

Hansa's principals, John Martin, Patrick Kennedy and Simon Lunn, previously worked with such corporations as BP PLC (BP) and Royal Dutch Shell PLC (RDSA). They reached out to Avista after learning the firm had invested in London-based oil and gas exploration firm Celtique Energie Ltd., said Kennedy, who serves as Hansa's chief financial officer. Hansa didn't use any investment banking service.

Hansa will focus on developing the Permian Basin from the Netherlands to Poland, and aims to supply natural gas to the Western European market.

These are Avista's latest deals from its second fund. In early May, Avista and Nordic Capital said they would acquire Bristol-Myers Squibb Co.'s (BMY) wound- care and ostomy-care products division for about $4.1 billion, in one of the largest buyouts announced this year.