TheChek News Flow

David Habachy and David Krieger recently formed Covalence Investment Partners, which aims to raise a debut fund, marketing documents show

Covalence Investment Partners, a new firm founded by two former executives of Warburg Pincus, is seeking $750 million to invest in the oil patch, pitching its debut fund as an opportunity to buy mature fields at bargain prices.

David Habachy and David Krieger, who launched Covalence early this year, both previously worked as managing directors at Warburg and led investments in oil and gas for the New York private-equity firm, according to a fund-marketing presentation viewed by WSJ Pro Private Equity. Warburg has sold several of its oil-and-gas holdings in the past year or so, as it retreats from the sector.

The new Houston-based firm is marketing its first fund, Covalence Equity Income Fund, to focus on buying oil-and-gas fields that have been in operation for years across several regions in the U.S. The fund’s 15-year term, which is longer than the 10-year duration of most private-equity vehicles, will help Covalence match its investments with the remaining life of the acquired assets, according to the presentation.

A history of poor returns in the shale industry—combined with concerns about the future value of the assets as the world shifts away from fossil fuels—is leading investors in traditional energy subsectors to favor fund strategies that generate the bulk of their profits from dividend payments rather than asset sales, said Al Carnrite, a managing director in the U.S. energy practice of consulting firm Alvarez & Marsal. That’s increasing the popularity of strategies that target so-called proved, developed and producing, or PDP, energy assets, he said.

“PDP strategies got rejuvenated about three or four years ago and part of that was driven by the downturn in oil prices,” Carnrite said. “Oil-and-gas investors are saying, ‘I want distributions. I don’t want my money locked up for years in the hope that there’s going to be some kind of transaction.’”

A sharp decline in oil prices that started in 2014 hit many private equity-backed producers in the following years, and Warburg had its share of losses. Sheridan Production Partners II, which was part of a broader business that the private-equity firm had backed in 2006, filed for bankruptcy in 2019 after raising $1.8 billion, mostly from institutional investors, WSJ Pro Bankruptcy reported at the time.

More recent Warburg investments in the sector have fared better. For example, oil-and-gas producer Ensign Natural Resources sold its assets in South Texas’ Eagle Ford shale region to Marathon Oil for $3 billion. Warburg backed Ensign in 2017 and helped it expand through acquisitions. In 2020, Warburg sold data-analytics company RS Energy Group to peer Enverus for about $1 billion. RS Energy’s annual recurring revenue increased nearly fourfold during Warburg’s four-year ownership, according to Covalence’s investor presentation.

Warburg Pincus Energy, a $4 billion oil and gas-focused fund that Warburg wrapped up in 2014, recorded a 3.68% internal rate of return as of the end of last year, according to a document from the Public Employees’ Retirement Association of Colorado, which committed $50 million to the fund.

Covalence sees opportunities to buy assets valued at 2.5 to 3.5 times their cash flows, well below the up to ninefold multiples recorded in 2016, at the peak of the shale boom, the marketing presentation showed. A shortage of capital in the sector is depressing asset prices. But sellers are finding deal conditions acceptable after a recent period of relatively stable oil prices, Carnrite said.

“Deals are obviously getting done, so there are buyers and sellers that are able to negotiate prices,” he said.

Deals among U.S. oil-and-gas producers totaled $46.6 billion across 61 transactions through September, compared with $58 billion across 160 deals in all of last year, according to Enverus. Two large deals announced in October—Exxon Mobil’s nearly $60 billion agreement to buy Pioneer Natural Resources and Chevron’s $53 billion takeover of Hess—dwarf the recent statistics. Additionally, Occidental Petroleum this week agreed to a $10.8 billion deal for CrownRock, an oil-and-gas company backed by Lime Rock Management that operates in West Texas’ Midland basin, which is part of the broader Permian basin.

The wave of consolidation sweeping through the U.S. shale industry creates opportunities for investment firms, as energy companies often shed less-desired assets after mergers, according to Carnrite and other industry consultants.

Covalence’s presentation showed a pipeline of four potential “near-term” transactions worth a total of $390 million that the firm has already identified. They include two public operators selling noncore oil fields in the Eagle Ford.

As opportunities abound, perhaps the main hurdle facing private-equity firms looking to invest in the oil patch is attracting investors reluctant to back fossil fuel-related assets, the consultants said.

“Many limited partners of private-equity firms have clearly signaled that they aren’t interested in oil-and-gas investments,” Carnrite said. But he added that some of them appeared to be changing their mind, as indicated by several specialist firms that recently raised new funds.

“The best way for the industry to attract investor capital is to continue to generate the great returns we have seen [in] the last couple of years while maintaining capital discipline,” he said.

Plan to force more trades through central clearing covers fewer hedge fund bets than initially proposed

US regulators on Wednesday are expected to approve a move to force a bigger slice of trades in the $26tn Treasury market to be cleared centrally, in a landmark reform aimed at bolstering the resilience of one of the world’s most important financial markets.

The Securities and Exchange Commission will vote in Washington on a proposal that could require an additional $1tn of daily trades to be handled by an independent clearing house. That would mean market participants had to stump up collateral to back those positions or cap the amount they can borrow in so-called repo trades.

US regulators want to shore up the market — which sets the price of US government debt and is the reference point for assets across the globe —following repeated bouts of instability over the past decade, most notably the “dash for cash” that sent Treasuries into freefall at the start of the Covid-19 pandemic in March 2020. Then, the Fed was forced to buy large amounts of Treasuries to steady the market.

The SEC framework will bring the Treasury market more into line with equities, futures and swaps, where clearing is common. A clearing house stands between a buyer and seller and prevents failed trades from cascading through the market. Only 13 per cent of Treasury trades are fully cleared, while 19 per cent have some part of the trade that is cleared centrally, according to the Treasury Market Practices Group.

Since the financial crisis, hedge funds and high-speed traders have become increasingly dominant in Treasury trading, and many settle their trades bilaterally, rather than going through a central clearing house.

The new regulation could help rein in the proliferation of highly leveraged bets on the Treasury market placed by hedge funds in recent years, which has come under increasing scrutiny from regulators and central banks this year. SEC chair Gary Gensler has also undertaken a broad push to revamp rules for trading, with an agenda that includes more oversight of lightly regulated entities such as hedge funds and proprietary traders.

However, the final rule under discussion by the SEC on Wednesday, will cover fewer Treasuries trades than proposed in a draft version published in September last year.

The final rule applies particularly to the repo market, where banks and investors borrow cash for the short term, offering high-quality collateral such as Treasuries in return, and to some cash trading. Hedge funds and leveraged traders will not be required to centrally clear deals in the cash market, as initially proposed, following pushback from the industry.

Despite the exemption for some cash trading, the revised proposal could capture an additional $1tn of daily repo and reverse repo trades for clearing, according to estimates from DTCC, the main US clearing house for Treasuries.

Many market participants have worried that the reforms could mean that broker-dealers would be required to find extra margin to back their customers’ trades when the market is at its most stretched. To offset those concerns, the SEC is proposing to tweak its rules to ease some margin requirements.

If adopted, the SEC aims for the new rules to come into effect in December 2025 on the cash side and June 2026 on the repo side.

Expands offer eye-scanning verification services to Mexico and Singapore

Worldcoin, a crypto project co-founded by Sam Altman, said it now supports integrations for its World ID with Minecraft, Reddit, Telegram, Shopify and Mercado Libre. The company already supports integrations with Discord, Talent Protocol and Okta’s Auth0.

Launched to the public about four months ago, the protocol recently was updated to World ID 2.0, which, the company says, makes it easier to distinguish between bots and “verified humans” online.

“It’s a much easier way for developers to build integrations,” Tiago Sada, head of product for Tools for Humanity and a core contributor to Worldcoin, told TechCrunch. “We’ve rebuilt the way it works.”

The new integrations will, for example, let Reddit moderators give special permissions to those who use their World ID “so they know you’re not spamming,” Sada said. Or, Shopify store owners can use World ID for fraud prevention or one-time promotions.

“This is not just about the first wave of applications, but a new developer platform where developers can build,” Sada said. “We’re excited to see what people come up with […] the best ideas come from developers.”

Three new types of World IDs

The company has also created three different authentication levels: The “casual” or “World ID device level” involves downloading the Worldcoin app and creating a World ID. You don’t need to use the Worldcoin Orb to scan your irises to prove you’re a person, and only have to make a profile. The “standard” or “World ID Orb” level involves creating a profile and also getting your irises scanned by one of the company’s Orbs to verify your identity. “High” or “World ID Orb+” security requires you to also use facial recognition to secure the app besides the previous two steps, Sada said.

When creating a World ID, users don’t need to provide their real name or identification, Sada said. “You can use it completely anonymously; the only thing you’re doing is proving you’re unique.”

It’s not bulletproof, though. You can use one World ID per device, so if you have a phone and an iPad for example, you can create two World IDs. You can do this until you choose to get scanned by an Orb, after which you can only have one ID.

“There’s use cases where it’s not sufficient,” Sada acknowledged. “It’s not perfect, but it could help prevent people from abusing systems, like voting 100 times on a poll, or having hundreds – if not thousands – of accounts,” he added.

Expansion plans

Additionally, Worldcoin is expanding its onboarding operations in Mexico and Singapore. Sada said the company is also working on bringing it to more countries in Asia. “The goal is to have Orbs available in any country to sign up […] They’re two more countries on a long list [of countries]; it’s going to take time.”

While the crypto project is steadfast in pushing its growth forward, it has also faced some headwinds. Earlier this year, Kenya banned Worldcoin from scanning any more of its citizens’ eyeballs on concerns that the company failed to inform users about the data security and privacy measures it had taken.

Separately, some critics have alleged the company targets developing countries and its residents since it gives most participants (outside the U.S. and some other countries) 25 WLD tokens, worth roughly $60.5, in exchange for signing up.

But this hasn’t stopped growth. Almost 5 million people globally have a World ID, and about 2.6 million people have scanning their irises with its Orb hardware to verify their identities. In the last 7 days, over 100,000 people have made new accounts, according to its website.

“Five million people is still very far away from the world [adopting it,]” Sada said. “So [2024 is] about improving things, but also getting to all of the people around the world.”

Some two years of talking about gig worker rights later and European Union lawmakers have finally reached a deal on the final shape of the Platform Worker Directive.

The development could deliver a significant boost for millions of gig workers laboring on digital platforms without being afforded workers rights. The EU estimates some 5.5 million people currently laboring for such platforms in the region may be wrongly classified as self employed (aka “bogus self employment”), meaning they are missing out on important labor and social rights protections.

The Commission presented its original plan to reform labor laws to boost protections for platform workers back in December 2021, setting out a presumption of employment for workers in a bid to flip the odds on gig economy exploitation. But the proposal proved contentious, with heavy industry lobbying from tech platforms such as Uber pushing for gig workers to be carved out of Europe’s employment protections.

There were also divisions between Member States over how much worker protection vs platform shielding they were prepared to commit to. But after a final trilogue, lasting more than 12 hours, a provisional agreement has been clinched.

Rappoteur and MEP Elisabetta Gualmini trumpeted the deal as “historic”, claiming the directive would advance workers rights for millions of gig workers across Europe.

“It is an historic deal because, basically for the first time, we build up a framework of social rights for millions of workers in Europe who are among the most the precarious,” she said during a press conference this morning to announcing the provisional agreement. “This is the first act that deals with the labour market of the future.”

The deal that’s been provisionally agreed means a presumption of an employment relationship between a gig worker and a platform will be triggered when two out of a list of five “indicators of control or direction are present”, as the parliament’s press release puts it.

“This list can be expanded by Member States. The presumption can be triggered by the worker, by their representatives, and by the competent authorities on their own initiative. This presumption can be rebutted if the platform proves that the contractual relationship is not an employment relationship,” it adds.

The agreement also contains transparency provisions that will require platforms to provide information to individuals performing platform work (and to their representatives) about how the algorithms that manage them work; and how their behaviour affects decisions taken by automated systems.

That looks important because while the EU’s General Data Protection Regulation (GDPR) already provides some rights to data subjects subject to automated decision-making, to be provided with information about the logic used by such algorithms, it’s fair to say that gig workers who have tried to use the GDPR to extract meaningful insights on the algorithms used to manage (and even fire) them have had to resort to lengthy and frustrating court battles to try to extract useful data.

Worker data access rights advocacy organizations will be hoping the new directive makes it far harder for platforms to find excuses not to hand over workers’ data.

The provisionally agreed new rules will also ban platforms from taking “certain important decisions”, such as dismissals or decisions to suspend an account, without human oversight.

Similarly, the GDPR contains a right to human review of legal or significant decisions taken by automation — but, again, gig workers have had to take platforms to court to challenge them over so-called ‘robo-firings’. So having an explicit law that bans such practices should force platforms to reform their practices.

Per the parliament, the agreed text also ensures “more human oversight on the decisions of systems that directly affect the persons performing platform work”; and obliges platforms to “assess the impact of decisions taken or supported by automated monitoring and decision-making systems on working conditions, health and safety and fundamental rights”. So conducting data protection impact assessments looks set to be a hard requirement for complying with the new law.

Another prohibition that’s been agreed is a ban on platforms from processing certain types of personal data of workers, including personal beliefs, private exchanges with colleagues, or when a worker is not at work — with the Directive billed as beefing up data protection rights for platform workers.

During the press conference Gualmini also suggested the agreed text in the area on consent to data protection goes “beyond the limits of the GDPR”, dubbing that part of the deal “extremely innovative”.

Other provisions in the provisional deal include a requirement for platforms to share information on self-employed workers in their employ with competent national authorities and representatives of those performing platform work, such as trade unions.

Measures to prevent platforms from circumventing the rules by using intermediaries has also been agreement — a practice that’s stepped up considerably in Spain since the country introduced its own labor reform, back in 2021, with the aim of forcing platforms to hire delivery workers.

“Member states will have to make sure that persons performing platform work working through intermediaries enjoy the same level of protection as those with a direct contractual relationship,” the parliament said on that.

Some key details of exactly what’s been agreed remain under wraps — and full visibility and analysis of the ramifications will likely have to wait for a consolidated text to emerge in the coming weeks/months.

To wit: Dragoş Pîslaru, chair of the Employment and Social Affairs committee, rebuffed a journalist’s question asking what the five “indicators” the co-legislators have agreed may be used to trigger a process that could lead to the reclassification of platform workers as employees — saying they could not go into the “exact details” of what is in the provision text agreed last night at this point. So how easy (or otherwise) it might be for to trigger reclassifications of platform workers is still unclear.

As the law is a directive, not a regulation, there will also be scope for some variation across Member States, depending on how they choose to implement it — but the idea for the pan-EU law is to set a minimum standard, leaving countries free to pass rules that further raise protections for workers.

The final text still needs to be voted on by the Council and Parliament before it can be adopted as pan-EU law. What implementation period has been agreed also isn’t yet clear. But today’s political deal signals the train has now left the station.

“This really is a historic agreement,” added Gualmini. “I doubted that we’d be able to get to such a good compromise. Because we now have the possibility to look at what’s happening in this labour market, move the burden of proof, ensure that we don’t have these people being falsely deemed to be self employed and not leaving it up to those people to prove that they are not self employed but, rather, it being the platform that is responsible for demonstrating that that employee really is self employed.

“And so this is a real improvement for the social rights and labour rights of millions of workers. This is the kind of step that we’ve never seen before in Europe. Looking at the algorithms, improving transparency. Our text is incredibly ambitious. And I am really incredibly happy that we are now managing to provide protection [for gig workers]. Now of course we want to have competition — fair competition — between multinationals but we also want to protect workers who in this labour market should have the support that they deserve, should not be abused by these companies as often was the case in the past.”

German publisher will allow content to be used to train artificial intelligence in ‘first of its kind’ agreement

Axel Springer will allow OpenAI to train artificial intelligence models using content from the German publishing giant’s outlets such as Bild, Politico and Business Insider, in a landmark deal for the global media industry.

Under the agreement struck with ChatGPT-owner, the German group will earn tens of millions of euros a year to allow its news content to develop generative AI technology that can create text, images and code that are indistinguishable from human creations. 

Axel Springer will also allow near real time access to its news stories to allow the AI platform to provide current answers to questions from its users. 

These will be provided in short summaries generated from news articles with links back to its websites, as well as longer and more fully developed answers. In effect, this will mean that users can access its news content via ChatGPT, albeit with links to the original source material.

Axel Springer will receive a one-off payment for its historical content that will be used to train the AI technology for the first time, but the larger fee will be paid under an annual licence agreement that will allow OpenAI to access more up-to-date information.

The companies have not disclosed how much is being paid but one person close to the deal described it as an annual “eight digit” sum.

The deal marks the most significant shift yet by a large publishing group in their dealings with the makers of chatbots and other generative AI products that threaten to disrupt to the global media industry.

Mathias Döpfner, chief executive of Axel Springer, said that the deal was “the first of its kind”. He added: “We want to explore the opportunities of AI-empowered journalism — to bring quality, societal relevance and the business model of journalism to the next level.”

Axel Springer said it would become the first publishing group globally to agree a deal with OpenAI that “explicitly values the publisher’s role in contributing to OpenAI’s products”. 

Brad Lightcap, chief operating officer of OpenAI, said it was “deeply committed to working with publishers and creators around the world and ensuring they benefit from advanced AI technology and new revenue models”. 

Earlier this year, OpenAI, Google, Microsoft and Adobe met news executives from publishers including News Corp, Axel Springer, The New York Times, The Guardian and the Financial Times, to discuss issues around their AI products, according to several people familiar with the talks.

Media executives raised alarm over the threat to publishers posed by the rising use of AI, with concerns that technology groups are accessing their data and content to ‘train’ answers and responses without permission. 

News Corp chief executive Robert Thomson said that “[media’s] collective IP is under threat” given that readers might no longer use news websites and instead find information through AI-generated answers. 

Media groups have struggled with finding the right way to be paid for their content, with fears that once they open the door to AI then their content will be devalued. 

They want to prevent the sorts of damage to their business models caused by sharing articles online for free with groups such as Google and Facebook that used them to build multibillion-dollar online advertising businesses during the early years of the internet.

Axel Springer said that the deal was important “strategically for us as this creates a revenue stream from an AI provider to us as a publisher — taking a more considered approach than back in the day when Google, Facebook and the likes came into the fold and publishers were deers in the headlights”.