Bear Paw Energy

Investment Status: realized

Sector: Gathering & Processing

Investment Fund: Fund I

Geography: Wyoming

Initial Investment: Jan. 1, 2000

Date of Disposition:March 1, 2001

In January 2000, Haddington’s Fund I acquired Bear Paw Energy (BPE) in a leveraged buy-out. BPE’s existing business in the Williston Basin had strong but volatile cash flow. Haddington believed that BPE could use cash flow from the Williston Basin operations plus funds from credit facilities to expand into the Powder River Basin (PRB). Haddington anticipated that this use of funds would stabilize revenues by increasing fixed rate fee revenue from the growing PRB business. Haddington estimated that, over two to three years, the percentage of BPE’s cash flow tied to “percentage of proceeds” type contracts which prevailed in the Williston Basin would be reduced from over 90% to 25%, since PRB contracts were fixed fee contracts. The seller was capital constrained, so the acquisition was completed at an attractive projected earnings multiple.

Commodity prices escalated throughout 2000 and volumes in the PRB increased, increasing BPE’s fixed fee revenues. In December 2000, Northern Border Partners, L.P. (NYSE: NBP) approached BPE with an acquisition offer. NBP purchased BPE in March 2001.