By Paula Dittrick
Senior Staff Writer
HOUSTON, Feb. 13 -- Plenty of private capital is available for the energy industry, but private capital providers appear more interested in midstream, transportation, and power assets than in exploration and production, energy finance panelists said this week during Cambridge Energy Research Associates' CERA week.
Oil and gas producers say the availability of public equity is taking a back seat to the availability of private equity.
Joseph Stanislaw, CERA president and CEO, said billions of dollars in private equity funds are unspent worldwide. He questioned how much of that funding could be obtained by the energy sector.
Given overall market conditions, capital providers are taking a very disciplined approach and are seeking projects that promise "a real return on capital," the panelists responded.
Power, pipeline assets
"There is a tremendous amount of capital available for the energy sector," said Randall Kob, managing director of Prudential Capital Group. "I talk to private equity sponsors and managers. The challenge isn't the absence of capital, but I think it's opportunity. I think the same exists on the debt capital side as well.
"What we see is that a lot of private equity firms are branching out from what is traditionally more of an E&P emphasis to midstream or transmission assets. . . .I think you are starting to see some private equity firms branch off to renewable energy. And also, many people are waiting on the sidelines to buy some merchant power assets that are expected to be sold as distress funds," Kob said.
Chris L. Fong, managing director of RBC Capital Markets, said he sees "a lot of capital, but you are talking power now. If you look at the E&P separately for private equity, I think there is an appetite. But frankly, E&P has not had a great return. They have tended to be smaller investments by smaller firms. . .and that's not where I think there is really going to be a focus."
Fong forecast that private equity would focus on power generation and pipeline assets.
"I think this year, you are going to see a lot of private equity—some large funds and some large deals—on the infrastructure size," he said.
E&P assets
Tom R. Langford, managing director of Morgan Stanley, acknowledged that the upstream side is going through a financing transition period. Morgan Stanley recently acquired some mezzanine debt portfolios, he said.
In the past, independent producers frequently turned to mezzanine debt financing for capital, but that vehicle largely has dried up in the last couple years. Many companies that set up producer financing divisions, such as Shell Capital Inc. and Aquila Energy Capital., have closed those divisions.
"I would assure you that for us to buy those types of portfolios, we assume there is a tremendous amount of underlying asset value," Langford said.
Contact Paula Dittrick at [email protected]
