Private equity fund formation around oil and gas investments is on the rise, with a majority of respondents to a recent survey stating they plan on raising funds around the opportunity, according to fresh research. Drivers of the opportunity in the sector include growing capital requirements in the oil and gas industry, as well as availability of financing, according to the survey from accounting firm EY.
Fifty-five percent of private equity (PE) executives cite the growing capital requirements of the oil and gas industry as the foremost driver of their investment activity in the industry, according to a newly-released report Financing the Future Energy Landscape: Private Equity Trends in Oil and Gas by EY and Mergermarket. The next largest driver is availability of financing, according to 44% of the 100 respondents surveyed, followed by global expansion (36%).
“The oil and gas industry is in a period of major capital investment. PE firms are well positioned to be a key player in driving future growth of the industry. Fitting well into their evolving model, PE firms can leverage their operational and commercial insight, oil and gas sector expertise and financial discipline to influence outcomes,” says Michael Rogers, EY’s Global Deputy Private Equity Sector Leader.
Fund formation targeted at specific oil and gas subsectors is a growing trend, with 64% of the survey respondents believe that the fund-raising opportunities in the next year will increase. Illustrating this point further, 65% of the respondents say they will actively be raising funds.
Increased interest in emerging markets
While the bulk of PE investment in the oil and gas industry is heavily focused on North America and is likely to remain so, Latin American and Asia-Pacific regions are expected to receive the highest increase in attention from PE firms over the next two years. Eighty-two percent of respondents expect PE activity to increase in Latin America and 79% expect it to increase in Asia-Pacific. When asked which four countries will see the highest level of PE activity, respondents most commonly cite the US, China, Russia and Brazil.
Andy Brogan, EY’s Global Oil and Gas Transaction Advisory Services Leader comments, “We are seeing an influx of capital investment into the emerging markets. The risk profile of emerging markets investments can be very different from those of developed markets. Companies are exercising caution, but optimism around the potential returns from acquisitions remains high.”
PE funds are acutely aware of the risks they need to manage and the risks considered most important vary from region to region. With the effects of the Eurozone crisis and political instability in North Africa still being felt, political risk was rated highest in Africa and Europe. For Latin America and the Middle East, respondents singled out operational risk, including health, safety and environmental (HSE), as one of the main threats to investments in these regions. In North America and Asia-Pacific, fiscal and tax risks were the primary concerns.
PE firms will continue to diversify their investment portfolios, and new oil and gas opportunities are emerging globally. PE firms in all regions will continue to adjust their business strategies to respond to the evolving landscape and to target oil and gas subsectors accordingly.
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This news release has been issued by EYGM Limited, a member of the global EY organization that also does not provide any services to clients.
About EY’s Global Oil & Gas Center
The oil and gas sector is constantly changing. Increasingly uncertain energy policies, geopolitical complexities, cost management and climate change all present significant challenges. EY’s Global Oil & Gas Center supports a global network of more than 9,600 oil and gas professionals with extensive experience in providing assurance, tax, transaction and advisory services across the upstream, midstream, downstream and oilfield service sub-sectors.
The Center works to anticipate market trends, execute the mobility of our global resources and articulate points of view on relevant key sector issues. With our deep sector focus, we can help your organization drive down costs and compete more effectively. For more information, please visit ey.com/oilandgas.
About EY’s Global Private Equity Center
Value creation goes beyond the private equity investment cycle to portfolio company and fund advice. EY’s Global Private Equity Center offers a tailored approach to the unique needs of private equity funds, their transaction processes, investment stewardship and portfolio companies’ performance. We focus on the market, sector and regulatory issues.
If you lead a private equity business, we can help you meet your evolving requirements and those of your portfolio companies from acquisition to exit through a highly integrated global resource of 175,000 professionals across audit, tax, transactions and advisory services. Working together, we can help you meet your goals and compete more effectively. For more information, please visit ey.com.
Mergermarket is an independent Mergers and Acquisitions (M&A) intelligence service, with the largest network of dedicated M&A journalists on the ground in 65 locations across the Americas, Asia-Pacific, Europe, the Middle East and Africa. This team focuses on gathering actionable proprietary intelligence, creating the only origination database of live targets and bidders. Mergermarket is also an unrivalled source of deal history. Public and private deals across a range of sectors can be searched using an exhaustive database. This proprietary intelligence and historical deals database is available to over 145,000 individual subscribers from more than 1,600 of the world’s principal advisory firms, investment banks, law firms, private equity firms and corporates. Mergermarket is part of The Mergermarket Group, which has over 600 employees worldwide and regional head offices in London, New York and Hong Kong.