Higher prices spark fresh investor interest in oil and gas
- Private-equity firms hope to tap renewed investor interest in oil and gas, industry consultants and fund managers say
Rising commodity prices are rekindling investors’ interest in oil- and gas-focused private-equity strategies after years of depressed fundraising, while more frequent exit deals give investors additional capital to redeploy in the sector.
“We see investors more interested in investing in our new funds going forward than we’ve seen in the last 18 to 24 months," said Frost Cochran, a managing director and founding partner at Post Oak Energy Capital, a private-equity firm that backs oil-and-gas businesses.
The Houston-based firm expects to launch a new fund later this year as it sees more opportunities to invest the roughly $200 million remaining in its current vehicle, Post Oak Energy Partners IV LP, which wrapped up in 2017 with $600 million, Mr. Cochran said.
Another private-equity firm, Lime Rock Management, recently raised $538 million for a new fund dedicated to buying oil-and-gas fields. Also, Pearl Energy Investments as of December had raised roughly half of the $900 million it is seeking for its third oil-and gas-focused fund, said people familiar with the matter.
Poor returns and a dearth of exit opportunities drove private-equity investors out of the oil-and-gas sector in recent years, industry consultants said. In addition, they said, many pension funds and endowments shun fossil fuel-related assets because of climate-change concerns.
U.S. private-equity managers raised about $2.48 billion across seven funds focused on oil and gas last year, compared with $15.66 billion raised for 21 funds in the previous year, according to PitchBook Data Inc. figures. Fundraising in the sector has been trending lower since 2017, when firms raised about $20.18 billion for 31 funds.
But as Russia’s invasion of Ukraine helps drive crude prices to their highest levels in more than a decade, some investors are taking a new look at such strategies, said Jeff Eaton, a global co-head and managing director of fund placement agent Eaton Partners. U.S. crude futures reached almost $124 a barrel earlier this month and closed Friday at $113.90 a barrel.
“We are still not seeing a lot of that activity with endowments and foundations that made it a policy not to invest in fossil fuels anymore," Mr. Eaton said. “We’re seeing it from some of the groups that either don’t have those policies in place or are willing to look past them a little bit because they’re starting to see a potentially attractive investment opportunity."
Those investors, he added, are encouraged by an increased number of private-equity exit deals in the sector as publicly traded energy companies, after years in retreat, returned to buying private equity-backed peers last year.
Privately held U.S. oil-and-gas producers sold $31.43 billion of assets across 66 announced deals last year, roughly eight times the $3.94 billion recorded a year earlier, according to Enverus, an energy-focused data provider.
In one example, Post Oak-backed PetroEdge Energy IV LLC last year agreed to sell its Eagle Ford shale assets in South Texas to New York-listed SilverBow Resources Inc. in a cash-and-stock deal, when U.S. crude futures traded around $66 a barrel. Post Oak invested in PetroEdge in 2015.
“Investors weren’t getting money back in the form of distributions because there weren’t a lot of exits, but now we could be in a situation where they’re starting to see returns on their investments," Mr. Eaton said. “It increases their inclination to reinvest in the strategy."
This story has been published from a wire agency feed without modifications to the text
