Tall City Exploration is back with a new private-equity backer and the same goal: Permian Basin A&D.

On Sept. 17, Tall City Exploration III LLC said it received a line of equity financing of up to $500 million from funds affiliated with New York-based private-equity firm Warburg Pincus.

Tall City said it intends to apply the “same proven geologic and petrophysics-driven thesis consistent with the team’s prior successful ventures” in its pursuit of play extension and acquire-and-exploit opportunities throughout the Permian Basin.

Michael Oestmann, president and CEO. (Source: Tall City Exploration LLC)

Tall City I was formed in 2012 with an initial commitment of $300 million from Denham Capital Management LP to seize an opportunity that the company’s co-founder, Michael Oestmann, said he saw in the Permian Basin.

Oestmann, who leads Tall City as president and CEO, is an Exxon-trained geologist and geophysicist with considerable Permian Basin experience. He has a successful track record in senior leadership positions at several independent entities, according to the company’s press release.

For Tall City I, Oestmann and his team assembled more than 90,000 net acres within the Midland Basin, mainly in Howard and Reagan counties in Texas, for a targeted 2015 exit. The company successfully realized that goal through two deals worth more than $1 billion.

In the first transaction, Tall City agreed to sell a sliver of its assets in November 2014 to an affiliate of American Energy Partners, a company founded by the late shale pioneer Aubrey McClendon, for $400 million in cash and notes. The deal included 14,000 net acres of leasehold primarily in Reagan County with production of 1,400 barrels of oil equivalent per day (boe/d).

In its final deal, which closed December 2015, Tall City sold its remaining assets to Moss Creek Resources LLC for $803 million. Moss Creek was formed for the purposes of the transaction by Blue Whale Energy North America Corp., a U.S. subsidiary of a Chinese energy investment company.

The agreement with Moss Creek, which marked Tall City I’s exit, consisted of oil and gas rights to leases on about 71,000 net acres in Howard and Borden counties in Texas. The rights include interest in 34 horizontal and six vertical wells with about 3,750 boe/d of production.

“Since our successful exit of Tall City I, we have been actively evaluating new opportunities to replicate our prior successes and continue to find attractive opportunities in the Permian Basin,” Oestmann said in a statement.

David Habachy, managing director for Warburg Pincus, said Tall City’s track record for developing extensional acreage and delivering strong returns was “outstanding.”

“The company presents a compelling opportunity in the Permian Basin and complements our existing investments in the region,” Habachy said in a statement. “We are thrilled to partner with a very strong operator in this high potential geography, and we look forward to working with Mike and his highly experienced team on this exciting new venture.”

Oestmann is joined by several members of the original Tall City team, who have operational and engineering experience in the Permian Basin. Team members and their new roles include:

  • Michael Marziani, executive vice president and CFO;
  • Dennis Kruse, senior vice president of drilling;
  • Gary Womack, senior vice president of operations; and
  • Angela Staples, senior vice president of land and general counsel.

Additionally, Tall City is joined by new management team members Tom Fekete, vice president of geoscience, and Matt Lake, vice president of reservoir engineering.

Tall City is headquartered in Midland, Texas, with additional offices in Houston.

Kirkland & Ellis LLP advised Warburg Pincus in its equity commitment to Tall City. Warburg Pincus has more than $45 billion in private equity assets under management. The firm also has offices in Amsterdam, Beijing, Hong Kong, Houston, London, Luxembourg, Mumbai, Mauritius, San Francisco, São Paulo, Shanghai and Singapore.

Emily Patsy can be reached at epatsy@hartenergy.com.