Energy Private Equity In ‘Holding Pattern’ As Exits Prove Difficult

Energy Private Equity In ‘Holding Pattern’ As Exits Prove Difficult


By Hana Askren and Chad Watt

Private equity portfolios are brimming with energy businesses ready to exit, yet options remain narrow, according to several sector experts.

“There are a lot of processes out being run” for energy portfolio investments between three and five years old, says one industry banker. But “it’s hard to get people to show up,” he says, adding that the sector is in a “weird kind of holding pattern.”

Many public buyers in services and upstream exploration and production have been forced to the sidelines. Energy services companies lack liquidity and their shares are not trading high enough to facilitate such deals, thinning the buyer landscape, according to the banker. Meanwhile, public E&P operators are absorbed in meeting investors’ demands for capital discipline and in finding alternatives to out-of-favor acquisition strategies that simply add acres and reserves, notes a second banker.

The outlook for energy IPOs remains uncertain as stock investors have yet to re-enter the space. As a result, private equity firms are considering other options, such as reverse takeovers or all-stock deals, adds the second banker.

In November 2017, private equity-backed Talos Energy executed a reverse takeover of Stone Energy in order to go public. Talos now has a market cap of $1.8 billion, and in early September executed a $52 million acquisition of a smaller Gulf of Mexico oil company.

In February, PE-backed Fifth Creek Energy merged with Bill Barrett Corp. to create HighPoint Resources. Fifth Creek’s PE backer, NGP, received half of the stock of the new Rocky Mountain-focused oil and gas producer in the deal.

Tender-Patform Rig. Offshore, Louisiana. c. undatedENERGY.GOV

PE firm valuation expectations are not synching up with offers from buyers, says the first banker. While PE sponsors are hoping for six to eight times EBITDA on energy services businesses, offers are arriving in the three to five times range, he adds.

Thus far in 2018, 24 E&P and services companies with PE backing in the US and Canada have achieved exits, according to the Mergermarket database. Some 43 such enterprises managed exits in 2017.

Looking forward, Mergermarket has identified several PE in investments that have been held longer than 48 months. Here is a select list curated from the Mergermarket proprietary PE Portfolio database:

Energy services

  • Allrig Group, an offshore rig company based in Houston, received backing in 2014 from Clyde Blowers Capital. It has revenue of less than $100 million, and has until 2022 to achieve an exit.
  • Drilling Tools International received backing from Hicks Equity Partners in February 2012. It made two acquisitions in 2014 and in April 2018 acquired the drill pipe rental division of Premium Oil Field Services Inc.
  • Fluid Delivery Solutions was backed by Trilantic Capital in June 2014 and made two acquisitions in the water management side of the energy services business in 2016. The Fort Worth, Texas-based company operates in Pennsylvania, West Virginia, West Texas and South Texas.

Upstream

  • Black Brush Oil & Gas was acquired by Ares Management in June 2014 from Tailwater Capital Management and EIG Management. BlackBrush operates in the South Texas Eagle Ford shale. The company is on its third PE backer. BlackBrush was formed in 2004 when Hicks Muse Tate & Furst acquired Kerns Oil & Gas Inc.
  • Caerus Oil & Gas was formed in 2009 and has built a half-million-acre position in Colorado’s Piceance Basin by acquiring assets from public companies leaving the play. This news service reported in 2017 and 2018 that Caerus could eventually be an IPO candidate. Caerus was initially backed by Oaktree Capital Management and Anschutz Investment Company. Old Ironsides Energy joined in July 2017 to fund Caerus’ acquisition of Colorado assets from Encana.
  • Jonah Energy was founded in 2014 by TPG Capital when it acquired assets in Wyoming’s Jonah field from Encana for $1.8 billion. Jonah Energy in September 2017 spent $582 million to acquire Wyoming assets from LINN Energy. Jonah investor group is currently led by TPG and EIG Global Energy Partners.
  • Black Swan Energy, a Calgary-based oil and gas producer, received backing in 2011 from Warburg Pincus, the Canada Pension Plan Investment Board and KERN Partners. Mergermarket flagged it as a potential Canadian IPO candidate in 2017, should equity markets improve. In September 2018, Black Swan sold a 50% stake in gas process facilities to AltaGas.
  • Hammerhead Resources received a $C 200 million commitment from Riverstone in 2014 and has raised additional equity and debt since then to develop its 200,000 acres in the Montney and Duvernay unconventional oil fields. In September 2018, Riverstone committed an additional $300 million to Hammerhead, formerly known as Canadian International Oil.

Hana Askren reports on energy from New York and can be reached at hana.askren@acuris.com Chad Watt reports on energy and business in the Southwest from Dallas and can be reached at chad.watt@acuris.com.

 



Source link

About The Author

TISH (The Information Superhighway)

Related posts

Leave a Reply

}