“Private equity is poised to drive oil deals valued at $100 million plus. Whoever is there to take the scraps off the table could have the best seat in the house.” – Jeff Johnson, CEO & Founder

Capital requirements for the oil and gas sector are high; the shortage of bank-led debt financing is offering plenty of scope for Private Equity (PE) firms to invest and provide more alternative financing sources than historical options to fund the world’s future energy needs. According to a recent EY global survey of 100 PE firms active in the sector, they are readying to deploy capital into the global oil and gas sector with 25% planning acquisitions before the end of the year and 43% by the first half of 2017.(1)

“The landscape of the oil and gas industry is shifting dramatically with a surge in companies looking to decommission and dispose of their assets, due to the lingering weakness in oil prices. As relationships with commercial bank lenders continue to change and public equity markets remain volatile, due to economic instability, one option for upstream companies looking to remove assets from their portfolios, and turn them into cash, is to partner with PE firms,” said William S. Lamb, a partner in Baker Botts’ New York office.

“The main driver for PE activity is low valuations, with the upstream sector generating the most interest. In mature regions like the UK, a particular challenge is how to manage decommissioning costs and we are starting to see this have a big impact on the structuring of deals,” added Paul Exley, a partner in Baker Botts’ London office. Exley commented, “The scale and uncertainty around these costs makes it difficult to ‘price them in’ so we and our clients are looking at alternative solutions to get the deals through.”

(1) Capitalizing on opportunities – Private Equity in Investment in Oil and Gas – EY (June 2016)