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Executives

John Homier - President and CEO

Steve Gardner - CFO

Kelly Plato - SVP

Analysts

Troy Ward - Stifel Nicolaus

Vernon Plack - BB&T Capital Markets

Larry Rice - Oppenheimer

Bob Martin - Private Investor

NGP Capital Resources Company (NGPC) Q3 2008 Earnings Call November 11, 2008 11:00 AM ET

Operator

Welcome to your NGP Capital Resources Company third quarter 2008 earnings call. At this time all lines are in a listen-only mode with the Q&A to follow. (Operator Instructions) As a reminder, this conversation is being recorded.

Now, I would like to turn the call over to your host, NGPC President and CEO, John Homier.

John Homier

Thanks for joining us today on this call to discuss our results for the third quarter that ended on September 30th, 2008. With me on the call today is Steve Gardner, our Chief Financial Officer and Kelly Plato, our Senior Vice President, who heads our Investment Team.

We are going to take a different approach to our call today. After my opening remarks, Steve is going to begin by summarize our financial results for the third quarter of 2008. Following Steve, I would like to review for you our business model and then I will provide our thoughts on the current credit environment and the recent declines in commodity prices principally oil and natural gas and discuss how we see these events impacting our business.

I will then discuss our risk evaluation system leading to a review of our portfolio of credit quality by Kelly. After that Steve, Kelly and I will answer any questions that you may have.

During the third quarter of this year, we funded targeted investments of $1.6 million all to our existing portfolio companies. We also had realizations from two portfolio companies generating net realized capital gains of $18.3 million before provision for income taxes. After tax net realized capital gains are estimated to be $14 million.

As of September 30th, our funded targeted investments totaled $301 million and our total committed and available for funding was approximately $365 million. Subsequent to the end of the quarter, we closed a $30 million Senior Secured Credit Facility with Black Pool Energy Partners for capital expenditures to develop its properties. Initial availability under the facility is $13.5 million.

Our earnings release was distributed this morning before the market opened and for those of you that do not received the copy of the release you can call us or you can download it from our website which is www.ngpcrc.com.

Also for anyone wishing to listen to a recording of our prepared comments today, we will have a replay available by phone through next Wednesday. The call will also be available through a link on our Investor Relations page of our website.

I would like to remind everyone at this point that our remarks today may include comments, which could be considered forward-looking statements. And as such statements are subject to many factors that could cause additional results to differ materially from our expectations as expressed in those forward-looking statements.

Those factors are described in more detail in our SEC filings and I refer you to our website or to the SEC website to review those filings. We undertake no obligation to publicly update or revise any forward-looking statements.

With that, I will turn the call over to Steve.

Steve Gardner

Thanks, John. Good morning everybody. In the third quarter, we had net investment income of $4.3 million or $0.20 per share taking into consideration that we had a $2.5 million accrual for capital gains incentive fees and a $1.4 million tax benefit from a subsidiary.

As a reminder, the actual capital gains incentive fees will not be calculated until that we close our books for 2008. Before the incentive fee accrual, net investment income was $6.8 million or $0.31 a share.

As John mentioned, we had realizations associated with two of our portfolio companies Resaca and Rubicon. In July Resaca completed an initial public offering on the London alternative investment market.

We sold a portion of our stock in the offering and realized a capital gain of $3.2 million. We also sold our overriding royalty interest back to the company realizing net capital gain of $2.8 million.

In August, Rubicon sold its assets and distributed the net proceeds of the sale to its members. We own 50% of that company. The initial distribution resulted in a $12.3 million realized capital gain before taxes.

Once final settlement occurs, we expect to realize another $1.7 million in capital gains. Because our Rubicon member interests are held in a taxable subsidiary, we have made a $4.3 million provision for taxes on the Rubicon gains.

Total for the quarter, we had realized capital gains after provision for taxes of $14 million or $0.65 a share. Detailed results for the quarter are in the earnings release and also in our 10-Q which we filed yesterday.

As of September 30th 2008, the weighted average yield excluding capital gains on our targeted investment portfolio was 12.4%. The improvement over last quarter’s yield was a function of income from our ATP royalty investments and the fact that LIBOR increased to almost 4% as of the end of the quarter.

In September, our Board declared a dividend of $0.40 per share for the third quarter. We expect the Board to consider and declare a final dividend of the year in mid December. A couple of other items we would like to note.

In late September, we extended the maturity on our investment credit facility from August 2009 to August 2010. One of the five banks in our group declined to participate in the extension, which caused the total commitments on the facility to be reduced from $100 million to $87.5 million.

Also in early October, we repaid the entire balance of the investment facility and reduced the balance drawn on our treasury facility from a $126 million to $75 million. With our investment facility and cash on hand, we have roughly $100 million of funds available to invest.

While we currently do not anticipate raising additional debt or equity capital in today’s markets, we will continue to review our options. As market conditions improve, we plan to increase the commitments under the investment facility and we will also look for other options to increase our debt capacity.

If we see improved investment opportunities as we expect or if a special situation presents itself, we may also seek to raise additional equity capital. We would be happy to answer any questions you might have about our financial performance after the call.

For now, I will turn it back to John.

John Homier

Thanks, Steve. As everyone is aware, the last 60 days have been a tumultuous time in the market. Our staff along with many others has been hard hit on the sell off. However, we have held up fairly well relative to others in the BDC space. Through yesterday, the mean total return for the Group in 2008 is negative 50%.

For NGPC, it is negative 20.5%. Also on average the Group is trading at about 55% of NAV. We closed yesterday at 80% of NAV. While disappointing, we believe this relative out performance is in large part due to our business model. As you know, NGPC is largely an asset based vendor to companies that operates in the energy industry.

Generally our borrowers own directly and develop and produce oil, natural gas, coal and other fundamental energy products. In a few instances, they used our hard assets to provide services directly to companies that produce those natural resources.

Even in light of the recent dramatic declines, the market prices for oil, natural gas and coal continued to be at historically strong levels, but are reflective of the price signals needed to replace and expand energy production.

At $60 of barrel and $6.50 per MMBtu, we believe that the market remains tight for the long run. Energy production requires constant and substantial investment to maintain and expand capacity to meet the needs of growing world population and long-term expansion of GDP.

The resources that the industry has to exploit today are more costly than in anytime in history. Because of this we believe that the demand for capital for the energy industry will remain strong into the foreseeable future.

This of course is where we play providing mezzanine capital to small cap companies and structured applications in the energy industry to help acquire and develop energy assets, accelerate growth and create value.

Our investments are either secured by our borrowers’ assets or are otherwise at an upward level in our borrowers’ capital structure. Today, our targeted investments are 59% secured either senior or subordinate, 36% of our investment while not secured in a traditional sense have limitations on capital senior to us ensuring NGPC a high level of asset coverage for its investment.

As you know, we look to make engineering based development oriented investments in the energy industry that are not purely priced, technology or exploration oriented. We invest with experienced management teams, who bring their knowledge to the transaction regional, technical or transactional.

We structure our transactions for the particulars of the deal and structure an appropriate return and appropriate total return for the risk that we undertake. For de novo transactions we screen approximately 30 deals to do one. We feel that this combination of assets, security, diligence, structure and appropriate pricing provides a good risk reward for our investors. We look forward to continuing strong demand for the type of capital that we provide to the energy industry.

We view that credit market volatility of late as a developing opportunity. As many of you know over the past two to four years, we have seen tightening credit spreads due to readily available capital in our targeted energy market. Over that time there were many transactions that we looked at though we felt that the recurrent being offered, which inappropriate to the risk and so declined to invest.

One of the impacts of the current credit environment is that we now see capital leaving the energy sector in general and however competitive space in particular. Senior banks from restricting credits, hedge funds and other journalist investors are also withdrawing funds from this space as well evidenced by the significant increase in bond yields into the mid teens and in some cases higher.

Significantly several traditional energy mezzanine competitors are reported to be on the sidelines. In fact one has been reported to have recently laid off all but two of its staff in an apparent prelude to winding down operations. We believe that realignment in the energy mezzanine finance space such as this should ultimately result in better risk return opportunities for NGPC.

Having said that another impact, of the current credit environment for NGPC, is that the capital available to us through the debt and equity markets is also clearly restricted at the present time

However with the entire amount of our investment credit facility available to draw and our cash on hand, we currently have about $100 available to fund new investments not including funds that may become available from realization of existing investments. While not unlimited this is significant dry powder that we intend to utilize in the best and most appropriate risk reward opportunities within the energy sector.

In spite of and in many cases because of the recent declines in oil and natural gas prices, there are great opportunities for the types of investments that we make. Potential client companies now have a greater need than at anytime in the last 18 months for external funding to help them acquire and develop projects that are eminently profitable at the current price levels.

The decline in commodity prices has not by itself materially impacted the credit quality evaluation of our investments. As we have stated previously our base underwriting price cases for oil and natural gas have been in the long-term range of $60 a barrel and $6.50 per MMBtu.

We also look at the sensitivity of our investments to prices even lower than that. Additionally, many of our current clients are benefiting from hedges that were implemented in much higher priced regimes.

That said lower commodity prices may affect the timing and level of realizations and capital gains for our existing portfolio companies. Lower prices may also aggravate the situations of certain investments that are performing below plan and necessitate longer-term strategies for those investments.

Given the volatility and uncertainty, currently embedded in the acquisition and the divestiture market and in the public markets, we have limited visibility at this time on potential realizations in the near-term.

Taken as a whole, the current credit environment and the recent declines in oil and natural gas commodity prices should present good long-term investment opportunities for NGPC, while not unduly punishing our existing portfolio. Although likely extending the timeframe of our capital gains realizations.

We expect to continue to invest in this market and to do so in a measured and deliberate pace. As we have discussed on our previous calls, we maintain a system to evaluate the credit quality of our investments, while incorporating quantitative analysis, this system is a qualitative assessment.

The system is intended to reflect the overall performance of the portfolio companies business, the collateral coverage of an investment and other relevant factors.

Based on this system, the overall credit quality of our targeted investment portfolio remains satisfactory. Of the 21 rated investments in 18 portfolio companies, as of September 30, 2008, when compared to the second quarter, 2 improved in rating, 15 retained the same rating and 3 declined in rating, 1 new investment was not previously rated.

Eight investments totaling $91 million or approximately 30% of the $299 million on a cost basis of targeted investments were carried on our watch list, due to slower than expected development of assets, supporting our investments, our deterioration of asset coverage mark-to-market conditions. The distribution of our ratings, are as follows.

Ranking one, we had two investments for $1.1 million. There is ranking two, we have three investments for $99 million. At Res III, we have four investments for $30 million. At Res IV, we have four investments for $79.8 million. At Res V, we have four investments for $34.4 million. And at Res VI, we have four investments for $56.6 million. No investments are rated seven.

The distribution gives an average rating on a dollar weighted basis of 3.6 at the end of the third quarter. For reference, our weighted average rating was 3.5 at the end of the second quarter of 2008 and 3.7 at the end of the third quarter of 2007.

In summary, we believe our portfolio remained sound with good potential for appropriate risk-adjusted returns.

Kelly, will now provide some color on our watchlisted investments.

Kelly Plato

I'll be discussing each of our watch list investments those that we rate five or higher. And currently, we have six portfolio companies representing eight investments on the watch list. Two that we are actively attempting to sell assets in order to repay investments, three that we have restructured and have the same improvement operations and one that is performing on plan. However, we have added it to the watch list, due to the current market environment.

Formidable, at $37 million is our largest watch list investment and we are currently in the process of selling properties in order to recover a capital. And Formidable, as we've discussed before, is a Utah based E&P Company, with operations in the Powder River and Uinta basins. Formidable has a significant acreage position in the Powder River Basin and good reserve potential.

However, it's suffered from poor execution of its development plan. Earlier this year Formidable's principals who have a significant equity investment of over $40 million invested beneath us, hired an investment advisor to develop strategic alternatives. That process resulted in agreement to merge with a small public company and we expected that transaction to close on September 1st.

However, the transaction was suspended in mid-August, when the buyer experienced the change in control. The buyer has indicated to us that they're still interested in pursuing the merger, but is unsure of when it will be in a position to finalize the deal, as a result of its changing control. Consequently, we've entered into a pro-balance agreement with Formidable that provides for the orderly sale of the company's assets, as soon as we can. We believe that the long-term asset value is still sufficient to cover our investment.

However, the company's cash flow has not been sufficient to cover operations and service our debt. Consequently, we've begin reserving against the interest income in the second quarter of this year and the equity owners have been making up the operations short-fall.

The second watch list investment and we're in a process of selling assets is DeanLake Operator. We had invested approximately $14 million in DeanLake that was used to acquire oil and gas properties in Montgomery County in Texas. During the first quarter of this year, we notified DeanLake that due to its performance and certain defaults, we were reducing our commitment and that we desire to have our investment repaid. DeanLake’s principal attempted to recapitalize the company and an effort to repay us, but was unsuccessful.

In July we reorganized the company exchanging our debt and warrants for controlling membership interest in the company, additionally, we've assumed operations of the company. We've spent several weeks preparing the company for sale and have begun marketing the assets of the company and expect to receive offers in the next several weeks. The company's cash flow has been sufficient to cover operations and we believe that the asset value is adequate to cover our investment.

BSR Loco is an investment that has been restructured and is improving. We invested approximately $4 million in Loco and earlier this year BSR Loco sold a portion of its assets to a publicly traded E&P company. In consideration of the sale, BSR received $1.3 million in cash, which was used to reduce the balance of our debt and also received to carry their interest in three wells to be drilled by the buyer.

The first two wells have been drilled and they're currently producing at attractive rates and the third well, has been drilled and completed and is expected to begin producing after some remedial work is performed on the well. Currently we're working on alternatives with BSR's management.

The second company that's been recapitalized is Chroma. They were recapitalized earlier this year in connection with an acquisition and is demonstrating improved results. Chroma is an oil and gas producer with operations in Texas and on the shallow waters of the Gulf of Mexico.

Our investment in Chroma is relatively small in connection with the other equity investors in the company. We have approximately $4 million invested in Chroma out of $111 million of total equity invested in the company.

As I said, Chroma was recapitalized earlier this year in connection with an acquisition and since the acquisition Chroma has reduced its debt by almost 20% and has improving cash flow and production.

The third restructured and improving investment is TierraMar Energy, an oil and gas producer with operations in South Texas. We made our initial investment in TierraMar in 2005 and early on we had better than expected success.

TierraMar experienced some operational setbacks and we restructured our debt investment into a control equity position and since the restructuring, we have drilled eight successful wells and have significantly increased reserves.

TierraMar’s production, cash flow and reserves have all improved this year. But we are keeping it on the watch list since its still under development stage. We have also been carrying it as a non-income producing investment, but are planning to have a dividend in the fourth quarter of this year.

The last portfolio company on the watch list is BioEnergy International and BioEnergy is a developer of bio based chemicals and fuels produced from renewable feed stocks. Since our investment in BioEnergy, it has performed as expected. However, we have included it on watch list due to the market environment for alternative fuel companies.

We made our investment in BioEnergy earlier this year, as part of a group of institutional investors. We have $5 million of a $35 million second lien loan issue and we have $10 million of a $61 million senior subordinated loan issue.

BioEnergy currently has two commercial projects, one product in the development phase and five products that are in the early stages of research. Its commercial projects include a renewable biochemical called D minus lactic acid which is used in the manufacture of plastics. The D minus lactic acid product has been licensed to PURAC, a European chemicals manufacturer.

Secondly it’s in the process of constructing a 108 million gallon per year ethanol plant in Clearfield County, Pennsylvania which is expected to be completed late next year. Recently the market has been particularly difficult for conventional ethanol producers and it’s the reason we have included BioEnergy on the watch list.

However we think the BioEnergy differentiates itself from merchant ethanol producers in several ways. Most significantly the production from its Clearfield plant is fully contracted for five years under an uptake agreement that fully hedges are exposures to fluctuations and the prices of corn, natural gas and ethanol and two demands for BioEnergy specialty chemicals is independent of the ethanol market.

The Clearfield Plant construction is on time and is on budget and the development of BioEnergy specialty chemical products as exceeded our expectations. While we recognized that this is a tough time for producers over renewable fuels BioEnergy is different from the merchant producers and we are very encouraged by the progress to-date.

John Homier

That concludes our prepared comments. I will now turn the call back over to our operator Adra to facilitate Q&A. Steve, Kelly and I will be handling your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) We’ll go first to Troy Ward with Stifel Nicolaus.

Troy Ward - Stifel Nicolaus

John I think you talked about the current environment and where actually one energy player was winding down. Could you describe what in the environment is causing that to happen?

John Homier

Not altogether sure. I think some investors are not expecting continually rising prices right now, which may have been why some of the hedge fund back participants. We’re in the market looking at much longer run of high prices and a chance to indirectly play the commodity market through the mezzanine investments space that could be reflective of some.

I think some may have gotten into the market and find that they now have a portfolio of much more troubled assets than we have, having probably been far more aggressive in both terms of pricing and structure and advance rates than we traditionally have been. So they may find themselves in the situation of having their retentions drawing more towards severe workup scenarios. Kelly, do you have any more thoughts on that.

Kelly Plato

The only thing I would add is the one firm in particular that has laid off most of its staff, they were a pretty good firm and I think its totally related to things in their other business, they were a division of a large investment bank.

And I would imagine that their pulling out of the energy space is more to do with things going on, in their other parts of their business and not particularly in their energy finance business.

John Homier

Troy, if you remember back in 2001 most of the big power companies had mezzanine norms and when the Enron blew up and the utilities were having challenges and needed capital back at the apparent, a whole slew of mezzanine funds were sold off in the private hands and they exited the business. That's not happening in this sense, broadly. But, I think in the case the Kelly's talking about that has something to do with it.

Troy Ward - Stifel Nicolaus

How does this maybe it's a broad dislocation, but there's clearly some disruptions in your marketplace right now. How do you balance at potential for quality investments that are maybe more available today versus also looking at your own portfolio and having to deal with maybe a little bit higher restructuring in such on your own balance sheet? How do you look at that versus keeping capital versus deploying it?

John Homier

Well, as we've talked about in the comments here, we're excising traditional capital budgeting discipline here. We have, as Steve pointed about $100 million of dry powder at the current moment, given the full availability on our existing bank line and the cash that's in cash flow. And so, probably we're value order ranking everything that we have to look at and starting at the top and working down.

We do think that, we need to be prepared for good opportunities and keep some of that dry powder, extra dry. But, we think just as we didn't earn one new transaction this month or this quarter were there were good transactions for us to do and we are just going to be very measured is, how we address those as the market continues to unfold in front of us.

Unidentified Analyst

Just a quick question on the credit facility that was recently renewed and I apologize if I missed it. Is there a minimum net worth covenant?

Steve Gardner

There is a not a minimum net worth covenant per say. What we have is the debt incurrence test, where we have to maintain eligible net asset value in excess, two and a quarter times to one. So if we want to have $100 million of availability under the line of credit, then to have that, we would have to have $225 million of NAV.

So that's how it's handled. But there is not a default trigger that says the facility is called automatically, if we have a certain level of NAV. But there is a mechanic that if NAV drop to a point and we had funds drawn on the facility and we've busted that particular ratio, than we would have to repay the funds.

Unidentified Analyst

Okay. And again, just reading through, I wanted to make sure I didn't miss it. But, when we look at the ATP investment, could you provide a little color on the number of extracted barrels of oil and nat gas in the quarter and kind of where you that to be going over the next several quarters?

Steve Gardner

We don't have those numbers with us…

John Homier

The total amount though on the transaction was 292,000 barrels.

Steve Gardner

Well, it was 400,000 barrels of equivalent and 292,000 of that was oil, the remainder was gas.

John Homier

You might speak Kelly, the question that you might speak to the hurricane impact.

Kelly Plato

Prior to hurricane Gustav and Ike, the facility was making approximately 18,000 barrels a day and about 50 million cubic feet of gas, which we were entitled to 15% of that whatever was produced. As, when Gustav came in, in early September, there was evacuations from the facilities and we really only had of about a week or 10 days of production during September and then it was down.

When Ike came in and the facilities were evacuated again and we had been off production for a couple weeks after Ike and then just founded out that the discovery pipeline in the Gulf of Mexico was down and being repaired, subsequent.

So we were totally shut in for another few days and subsequent to that, we received a permit to acquire gas, our ATP received a permit for gas and that was making oil of about 5,000 barrels a day which we received 15% of at for the last couple weeks and Discovery has given guidance that the pipeline should be back on at the end of the first week, at the end of the second week of December. But we think the facility will be back fully functional early next month.

Unidentified Analyst

One quick credit question, you spoke about Formidable and the issues that are involved there. And the question of when that it was valued, as you look at it right now I believe in the Q it states that it’s sufficient, its asset coverage is sufficient to cover the outstanding or mostly cover the outstanding obligation. When was that valued and just in light of the price of oil, is it fair to assume does that valuation could possibly fall materially?

Steve Gardner

It was valued as of 9/30. There is not a lot of production on those properties. If you think about the asset it’s about 80,000 net acres in the Powder River basin and about 16,000 net acres in the Uinta basin and then we also have a guarantee from the principals and the parent company for the ballets over $34 million.

So, right now it's about $3 million of principal balance and couple of million dollars of accrued interest that we've been reserving against that we have a guarantee for. The property is a gas producer. In the Powder River, we're making about 800 Mcf a day and in Uinta, it produces intermittently at very low rates. There is only been a couple of wells drilled and they've had some infrastructure problems.

So and the Uinta basin properties are a small piece of that. But it’s really not affected by oil prices. It has been affected by basis differentials in the Rockies, which are pretty rough right now and have been over the last month or so or couple of months.

But really if you look at that deal, there has been about $83 million of total capital put into the deal most of it by the equity owners and while we think the value of the total enterprise hasn’t been materially impacted by performance and by the market. We still think there is quite a bit of value there to cover our position and we are in the process of liquidating it.

John Homier

John, I would also point that we run our valuation. They typically done at our base case scenarios that John described early $60 oil and $6.50 gas thereabout, so we sensitize it. So, when you see oil drop from a $120 down to $60 it doesn’t mean that half of the value has gone away, based on how we run our valuations.

Unidentified Analyst

Great. Thank you.

Operator

We'll go next to Vernon Plack at BB&T Capital Markets.

Vernon Plack - BB&T Capital Markets

Great. Thanks very much. I just wanted to confirm in terms of non-accrual investments there are three correct Chroma, BSR Loco and Formidable?

John Homier

That’s correct, Vernon. It's about $40 million in total about 13.5% of the portfolio. It then changed from the second quarter.

Vernon Plack - BB&T Capital Markets

Okay, great. And can you give me anytime of expected reasonable time to exit the Formidable or is it just too uncertain right now or we think in the next two quarters, 12 months, two years?

John Homier

It's hard to see right now, Vernon. But we feel pretty good about the deal that we had to merger the company with the small forward company that was set to close on September 1. Since that deal has been suspended, we have regrouped and are looking at hiring another advisor to market the properties for sale.

The thing that occurred earlier this year, the principles of the company were looking for a new equity partner or looking for some kind of a joint venture that left them in the deal and left them exposed to some upside potential. Since they have such a big amount of equity invested in the company.

We have entered into an agreement with the company now since this merger has been put on hold to market the assets for sale and just to sell all of the properties. We’re still open to some sort of merger, joint venture that allowed us all to have some exposure to the upside. But we’ve made it clear with the company that we’re interested in getting it repaid.

Kelly Plato

But maybe to your question Vernon, a straight sale advisory engagement going down the road for oil and gas properties would be something in the three to five months range.

Vernon Plack - BB&T Capital Markets

Okay. Fair enough.

Kelly Plato

Would be pretty typical.

Vernon Plack - BB&T Capital Markets

Sure. Okay. The question about the dividend looking at where net interest income has come in so far this year as well as the gains that you’ve realized that approximates the dividend for this year.

But John given some of your comments in terms of gain harvesting, actually being a little bit more challenging now and maybe perhaps a little bit longer term makes me question in terms of the dividend for next year?

I don't know if specifically, if you want to comment on that. But am I right thinking that in order to keep the dividend where it is, given you need a meaningful amount of realized gains for next year and if you don't get that, then obviously, the dividend would have to come down.

John Homier

Well, let me say that we're not prepared to talk about the dividend for next year at this time. By the time we have to make our first dividend decision, which will be in March of '09 and we'll have another five months of visibility of how the markets unfolding at that time. But to answer hypothetical for you, if we had $1.20 of net investment income, we would need $0.40 worth of capital gains in order to have $1.60.

Vernon Plack - BB&T Capital Markets

Right.

John Homier

Our total distributable income in next year. Right now standing where we are, as I said in the comments, we don't have a lot of clear visibility all in plus could be or what we think we have a high certainty of mainly a capital gain a bit for next year. The market next year may not present us with good opportunities.

We want to harvest in a more stable and upper trending market, rather than one the people are perhaps looking for bargains in transactions. So we're not interested necessarily in the long-term. We're taking a quick small thought of when there was a much larger profit to be made by taking a longer term view and harvesting of that.

Vernon Plack - BB&T Capital Markets

Okay. One final question in terms of portfolio growth, given now your comments today, as well as comment you've made on previous calls. I suspect that any growth will be relatively measured and opportunistic at this point given the market, correct?

John Homier

That's certainly, correct. I mean we can deploy everything that we have available today, and the worst case is that we don't have access to any additional capital, right. And so what we have available in total right now is roughly $300 million of equity and roughly a $100 million of debt which would get us a $400 million portfolio.

Given the pace and given the historical pace of investments and given the market where it is today, it's quite easy to think that we could be fully invested, with all of that capital, sometime well before the end of next year if we choose to do so.

I don't know that we would want to just jump out and invest ourselves up fully. But we want to look at it as I said in our capital rationing sort of way, valuing or ranking our transaction starting at the top and working down.

Vernon Plack - BB&T Capital Markets

Great. Thank you very much.

Operator

We'll move next to Larry Rice at Oppenheimer.

Larry Rice - Oppenheimer

Can I ask you to expand a little bit on the relationship with Eagle Rock?

John Homier

We don't have any relationship with Eagle Rock. They've been a portfolio company of the NGP Energy Capital Management, private equity funds based in Dallas..

Larry Rice - Oppenheimer

I guess that was where, I got confused.

John Homier

Yes. They've been involved for a long time with that company. But we have no financial relationship or any other relationship with them from our front.

Larry Rice - Oppenheimer

Super. Thank you.

John Homier

You're welcome.

Operator

And our next question comes from Bob Martin, an Investor.

Bob Martin - Private Investor

Could you give me some color on your reluctance or resistance to offering equity below NAV?

Steve Gardner

Sure. I don’t think we’ve addressed it at all, Bob.

Kelly Plato

Bob, it’s the one we don’t have the ability to issue equity below NAV to do so we have to go to the shareholders and get a specific approval. Hypothetically in scenario, which we might do that would be if we saw such an opportunity that would be so tremendously accretive that it would be worthwhile to existing shareholders to have a dilutive equity offering then we might do so. Other than that my personal opinion is that it's not advantageous to our existing shareholders to do that.

Bob Martin - Private Investor

That's what I wanted to hear. Can you give me some color on the maximum capsize limitation that NGP would have in placing new investments. As an example I know many publicly traded master limited partnerships that need money; are you prohibited from funding larger capped MLPs?

John Homier

No. We are not prohibited from that. We have qualifying asset of requirements that 70% of our assets have to be qualifying; typically a publicly traded entity of size would not be a qualifying asset. But for example, we have done a deal. Our net profits interest with Anadarko Petroleum Company, which clearly is a liquid large cap company, but it falls within the 30% non-qualifying.

So we could have some of those non-qualifying investments up to 30% of the total portfolio in size. As John described earlier, with the $300 million of equity and $100 million roughly of debt capacity, right now you could say our theoretical maximum portfolio will be $400 million and we could put roughly 30% of that or $120 million in non-qualifying assets, which a publicly traded MLP would be one.

Bob Martin - Private Investor

Your current level of non-qualifying assets has been zero?

John Homier

No. The investment in Anadarko Petroleum and investment at ATP royalty so those totals would roughly be $65 million to $70 million as a ballpark out of the total $300 million. And we’ve also got Pioneer bonds in there, which would be considered non-qualifying those are different numbers. So, roughly$90 million is that we could just say.

Bob Martin - Private Investor

So $90 million out of theoretical possibly at 120?

John Homier

We have some capacity there.

Bob Martin - Private Investor

And then ATP and Anadarko are also rolling…

John Homier

Yeah. They are paying back.

Steve Gardner

They are paying back relatively quickly .So there could be a little capacity there.

Bob Martin - Private Investor

Okay. On your non-accruals they went from 20% last quarter to 13.5% this quarter?

Steve Gardner

It should be about the same.

Kelly Plato

The same three companies are on non-accrual.

Bob Martin - Private Investor

And just I remember, I thought you said 20% last quarter maybe its only 13.5%?

Steve Gardner

I think it was around 13…

Kelly Plato

Or $0.12 per share, but it’s the same companies and Formidable being the big one. The first time that Formidable was on non-accrual was last quarter.

Steve Gardner

Second quarter, yeah.

Bob Martin - Private Investor

Okay. That’s all the questions I had.

Steve Gardner

Thanks Bob.

Operator

And that does conclude today’s question-and-answer session. Mr. Homier, I’ll turn the conference back over to you for any closing remarks.

John Homier

All right. Well thank you all for being here and taking time to hear the story one more time about NGP Capital Resources Company. We appreciate your interest and we look forward to talking with you again, when we report the results of the fourth quarter and the full year 2008. Thank you again.

Operator

And that does conclude today’s conference. Again, thank you for your participation.

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