How Do You Achieve a 30% CAGR over 27 years in the Oil and Gas Industry?

In 1988, Ken Hersh co-founded NGP Energy Capital Management, one of the nation’s largest natural resources private equity firms which pioneered private capital investing in the sector. Until 2016, he served as CEO, investing over $12 billion, earning a 27-year 30% annualized rate of return. 

Ken got his start working for legendary investor Richard Rainwater. 

Richard Rainwater (1944 – 2015) was trained in math at the University of Texas and an MBA at Stanford. He did a short stint at Goldman Sachs before classmate Sid Bass recruited him in 1970 to steward the Bass family fortune. Rainwater studied Buffett and Graham, built sophisticated valuation models, and helped parlay roughly $50 million of Bass oil wealth into a $5 billion-dollar empire. He did it through shrewd stakes in energy, real estate, and buying a 25% stake in a struggling Walt Disney in 1984 for $478 million and bringing in Michael Eisner to turn it around. 

Then in 1986, at the age of 42 with $100 million of accumulated personal wealth, Rainwater left the Bass family and went out on his own. 

One of Rainwater’s earliest personal investments post-Bass was in a struggling offshore drilling company called Energy Ventures, which he later renamed Ensco. Offshore drilling was deeply out of favor at the time due to falling oil prices, but Rainwater sensed a bottom and bought in when rigs were selling for less than scrap value. That contrarian bet would eventually pay off massively, positioning him as a smart energy investor in his own right. Ensco would turn into Valaris (VAL).

Soon after in 1987, Rainwater partnered with a young lawyer-turned-operator named Rick Scott (yes the two term Florida Governor, now Senator) to launch Columbia Hospital Corporation, a two-man outfit that acquired two Texas hospitals. Rainwater put in the seed money, and the duo set out to consolidate what they saw as an inefficient, fragmented healthcare industry. The chain would later grow explosively into Columbia/HCA, the largest for-profit hospital operator in the country.

It was around this time in 1988, that Rainwater ran into Ken Hersch. 

Ken’s early experience with Richard Rainwater was a masterclass in initiative, serendipity, and being ready when luck meets preparation. It began in 1988 while Hersh was a business student at Stanford. Seeking a unique summer internship outside the typical corporate recruiting channels, he reached out cold to Rainwater.

Hersh had no inside track, no connection beyond having heard Rainwater’s name. He simply called 411 information, got Rainwater’s Fort Worth office address, and sent a handwritten letter and résumé. Four days later, Hersh got a call. A voice on the other end said, “Hold for Mr. Rainwater.” He assumed it was a prank—until Rainwater got on and opened with, “Do you want the quote?” Rainwater had called Hersh’s former boss at Morgan Stanley, who had replied: “Ken Hersh is the best analyst we’ve ever had.”

That phone call led to an in-person meeting in Fort Worth. Rainwater had no formal team or structured business plan. His office looked more like a lab than a corporate suite—whiteboards filled with numbers and big ideas, and a desk with only a phone, a family photo, and a legal pad. He told Hersh he wasn’t hiring, but handed him a McKinsey report on natural gas markets and casually asked what he thought.

Hersh, having worked in Morgan Stanley’s energy group, offered a bold proposal on the spot: he would design a study on who would win or lose if McKinsey’s forecast for a natural gas price spike came true. He offered to do the work while also interning at McKinsey. Rainwater told him to put it in writing.

Hersh mailed the proposal with a request for a $5,000 stipend. The next day, a FedEx envelope arrived—no note, just a check for $5,000. “I guess I have my first client,” Hersh thought.

That study—researching which energy companies would thrive under rising gas prices—became the foundation for what would become Natural Gas Partners (NGP). Hersh presented it to a group that included future Texas power players like Rick Scott and John Goff. Eventually, Rainwater introduced him to David Albin, a former Rainwater associate. That partnership—formed when Hersh was just 25—would last 30 years.

By November 1988, The Equitable Life Insurance Society committed $97.5 million, and NGP was born.

In the early days of Natural Gas Partners (NGP), the investment thesis was clear: commodity prices—especially natural gas—were poised to rise. Armed with a bold McKinsey forecast and ~$100 million in backing from The Equitable, Ken Hersh and his partner David Albin set out to bet on the assets that would benefit most if that prediction came true.

There was just one problem. The prediction was dead wrong.

Instead of rising, natural gas prices fell for seven straight years. NGP, still in its infancy, was staring down a brutal reality: the very foundation of their thesis had cracked. But instead of folding, Hersh and Albin did something that would redefine energy private equity—they pivoted. They looked at their early portfolio. Four deals. One flopped. One did okay. Two were thriving. Why?

The answer wasn’t the assets—it was the people.

The winners weren’t sitting on better fields. They had better managers—people who could adapt, cut costs, find new opportunities, and make something out of nothing. As Hersh put it, they could “make lemonade if the world gave them lemons.” That realization sparked a quiet revolution at NGP: stop trying to predict the commodity cycle, and start backing the best operators, regardless of market conditions.

This wasn’t the norm in the late ’80s and early ’90s. Most private equity firms insisted on deals with existing assets in place. But NGP went the other way. They stopped requiring hard assets. They looked for engineers and operators with grit, passion, and a track record of turning underperforming wells into cash-generating machines. They called them “owner-managers”—people who were willing to invest their own capital and act like true partners.

Backing people instead of assets was radical at the time. But it worked. And not just financially—it helped unlock the unconventional shale revolution. The big oil majors had written off tired fields and old shale formations. But NGP-backed entrepreneurs, armed with horizontal drilling, trial-and-error, and equity capital, brought them back to life.

That pivot—from assets to people—defined NGP’s culture. It turned a nearly doomed thesis into one of the most successful franchises in energy private equity. And it offered a timeless lesson: in a commodity business, people aren’t just part of the equation. They are the equation.

How do you achieve a 30% CAGR investment track record over 27 years in the Oil and Gas industry? Locating great assets? Finding the next big oil field? 

No. You do it by finding and backing great people. 

Listen to this great interview with Ken Hersh on the Fort Podcast.

If you enjoyed this article, you’ll also enjoy – The Little Things that Result in the Big Things. 

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