GPs pump capital into oil and gas

The sector continues to be a strong area of investment for private equity firms, driving 25 percent of deal volume in April this year - despite a contraction of investment in most other industries.

Financial sponsor investment in the oil and gas sector has gathered significant momentum, especially since the middle of last year – in contrast to wider trends across the buyout industry.

Oil and Gas:
25% of April deal

In 2008, deal volume in the oil and gas sector has so far reached almost $10 billion (€6.4 billion) across 16 transactions, compared to $11.7 billion across 40 deals in the whole of 2007, according to data provider Dealogic

Investment by buyout firms in oil and gas has developed significantly in recent years. In 2005 there was $4.8 billion of investment across 24 deals, while 2006 was a record year with $26.9 billion of investment in 44 deals. However, the data for 2006 was skewed by the $21.7 billion take-private of Kinder Morgan, the US energy transportation, storage and distribution company – the largest private equity deal ever in the oil and gas sector.  

In April, oil and gas buyouts have represented 25 percent of activity by financial sponsors, while, in the first quarter, the sector accounted for 9.8 percent of private equity deals by value. This compares to around 1.5 percent in the full year 2007 and around 4 percent in 2006, despite that being a record year.

Thomas Sikorski, a managing director at First Reserve, the global specialist energy investor, said: “The sector has yielded higher returns in the last five or six years.” These returns have been driven by the high oil price, which in recent weeks has been hitting new records. 

Private equity involvement has tended to focus on the oil and gas services sector, rather than the direct sourcing of oil. “People like Shell have their hands full with their upstream investments. They’re doing less acquiring and more building and growing. That leaves a little bit more running room for the financial players [in the services sector],” Sikorski said.

First Reserve signed the largest volume of deals of any private equity firm in the first quarter of 2008, investing $4.8 billion across four deals. It also agreed the largest deal of the quarter: the $3.5 billion take-private of CHC Helicopter, a Canadian oil and gas-focussed transportation company. 

People like Shell have their hands full with their upstream investments. That leaves a little bit more running room for the financial players

Thomas Sikorski

The 2008 data assumes that a Candover-led consortium completes its £1.6 billion take-private of Expro, the oil and gas distribution company. Halliburton, the US oil giant, is considering a counter-bid and is in due diligence with Expro.