Private Equity Hunts for Oil Deals Outside U.S.
Funds that profited from North American energy deals are now looking almost everywhere else
LONDON—Private-equity funds that once profited from energy deals in North American shale are hunting in a new bargain basement for cut-price oil-and-gas fields: almost everywhere else.
Flush with cash from recent fundraising, the groups are looking for assets with owners who have been hurt by the precipitous fall in oil prices—from the North Sea to Nigeria, South America to Southeast Asia. Their previous success in North America—where unconventional oil drilling has led to a boom—has stoked demand from investors, such as pension funds, endowments and insurance companies.
“The fall in the oil price has given us opportunities to buy larger assets and larger companies,” said Marcel van Poecke, a managing director for Carlyle International Energy Partners, or CIEP. “The next two years are obviously a very good investment period,” he said.
The activity comes after the sharp decline in oil prices from last summer’s peaks of around $114 a barrel to lows of under $50 in January, making assets significantly cheaper across the board. With their share prices falling with the price of oil, smaller companies have had a tough time refinancing debt and raising much-needed capital to carry on drilling, providing an opening for private-equity firms to move in.
“Cash is king. Equity markets are closed to oil and gas companies,” said Darren Spalding, a London-based energy lawyer and partner at Bracewell & Giuliani, speaking about U.K. financing.
Mr. van Poecke is one of a wave of private-equity bosses looking to invest outside North America. Carlyle said in March that investors had committed $2.5 billion to its first international energy fund, the biggest first-time raise in its history, giving the group over $10 billion to invest in energy.
CIEP is now on the hunt for upstream assets in the North Sea, and producing fields in Nigeria or Southeast Asia, Mr. van Poecke said. It is also evaluating oil-field services companies that have been at the sharp end of the oil-price swoon, he said.
Sam Laidlaw, former CEO of U.K. energy company Centrica PLC, has been tapped to head a new $5 billion oil-and-gas investment vehicle backed by private-equity firms Carlyle Group and CVC Capital Partners. The fund—Neptune Oil & Gas Ltd.—will focus on large-scale opportunities in the North Sea, North Africa and southeast Asia.
In January, KKR appointed Haroun van Hövell as head of its energy team, part of the group’s plans to build that group outside of the U.S. Blackstone’s Mustafa Siddiqui moved to London from New York last year to lead the firm’s energy activities in Europe, the Middle East and Africa. Blackstone has around $8 billion to spend on energy deals globally.
Blackstone Energy Partners and Blue Water Energy have already invested $500 million in Siccar Point Energy, a new U.K.-based oil company focused on the North Sea that aims to build a big position in the region as the larger oil firms, such as France’s Total SA and Royal Dutch Shell PLC, seek to reduce their holdings in the area.
Messrs. Siddiqui and van Hövell declined to comment for this article. Mr. Laidlaw didn’t respond to requests for comment.
The moves come as Royal Dutch Shell’s $70 billion proposed acquisition of BG Group PLC gives buyers and sellers a yardstick to measure other deals against, bankers and lawyers said.
An oil well near Tioga, North Dakota. After profiting from North American energy deals, private-equity firms are now scouring the world for investment opportunities in the oil and gas sector. ENLARGE
An oil well near Tioga, North Dakota. After profiting from North American energy deals, private-equity firms are now
Private equity-backed deals in oil and gas outside North America more than doubled in value in 2014 compared with 2013 to $11.4 billion, according to data provider Preqin. This year, as of June 17, the deal value outside North America is at $3.6 billion.
So far this year, private-equity firms managing buyout and natural resources funds that are focused on oil and gas investment outside of North America have raised $2.5 billion, according to Preqin, more than double the amount raised in 2013 before the oil price fall in the following year.
The firms are looking in particular at the North Sea, a region with aging fields and declining production where the oil price fall has hit hard, making assets cheaper. They have also looked to West Africa, where oil that once went to the U.S. has been pushed out by shale, and South America, East Africa and Asia, where the drop in the oil price has also created opportunities to take over smaller projects.
In May, funds advised by Helios Investment Partners agreed to invest $100 million for a 12.4% stake in Canada-listed Africa Oil Corp, which has assets in Kenya and Ethiopia as well as Somalia.
Simon Eyers, a managing director at Warburg Pincus, which has been a pioneer in energy investing, said the firm’s recently raised $4 billion global energy fund, which closed in October last year, would focus on energy exploration and production across the globe as well as power, services and mining.
But private equity’s success in the international energy sphere hasn’t always been straightforward.
White Rose Energy Ventures LLP, which was partly backed by Riverstone and other partners, failed to find oil off the coast of Angola after drilling two deep water wells last year at a cost of more than $300 million, illustrating the risks of international oil exploration.
Riverstone declined to comment.