Outlook for Energy-Focused Private Equity Fundraising – March 2015

by Chloe Wong

  • 24 Mar 2015
  • PE
  • NR

Energy companies which source and distribute oil are experiencing more worries as recent oil prices have fallen to a six year low. The oil industry may take longer than anticipated to stabilize, but there may be some cause for optimism for financially-troubled oil companies: in the UK, Chancellor George Osborne’s 2015 Budget statement proposes giving the North Sea oil & gas industry up to £1.3bn in tax cuts, including a cut in the Petroleum Revenue Tax. This reduces the tax these companies have to pay from the current rate of 50% to 35% in 2016, and further cuts are being made to the existing supplementary charge. Should the Conservative Party remain in power, the additional help may encourage more private equity activity in the North Sea oil industry. In general, Preqin’s Funds in Market online service shows that the energy sector is thriving.

The aggregate capital raised by energy-focused funds (comprised of investments in any of the following industries: energy, oil & gas, power and utilities) totalled $49bn in 2014; representing 9% of total private equity fundraising that year. An additional $3bn was secured from energy-focused funds in 2013, accounting for 10% of total private equity fundraising that year. Contrary to what is expected when a crisis like this arises, the downward slide in oil prices that began in the summer of 2014 does not appear to have discouraged investors from targeting energy-focused funds. Preqin’s data shows 71% of energy-focused funds that closed in 2014 were on or above target. Furthermore, energy-focused funds reduced their average time spent on the road from 16 months in 2013 to 13 months in 2014.

2014 saw a major decrease in capital raised from energy-focused funds by non-specialist fund managers*, though specialist fund managers continued their annual trend of raising ever more capital. In 2013, non-specialist managers raised an all-time high of $20bn, but secured less than half this amount in 2014 ($8.6bn). Meanwhile, specialist fund managers secured $8bn more capital, raising $40bn in 2014. Of the total number of energy-focused funds, 76% were raised by specialist GPs, but Preqin’s data reveals that non-specialist fund managers tend to close with larger fund sizes. As seen in the chart above, there is a disparity between the average fund sizes from the two types of GPs, an ongoing trend that is most likely to continue into 2015.

As of March 2015, there are 70 energy-focused funds in market with an aggregate target size of $43bn. Thirty-nine percent of these funds have held at least one interim close, raising an aggregate $20bn. With the end of Q1 in sight, the energy industry is still very much active despite the sustainability concerns surrounding the oil industry. It is not known whether this tax break could help North Sea oil companies ride the tide and continue their exploration plans, though some experts in the field see the government’s proposal as a step in the right direction.

* Non-specialist fund managers are typically large private equity firms investing across multiple investment strategies.

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