According to a new report from EY and Mergermarket entitled Financing the Future Energy Landscape: Private Equity Trends in Oil and Gas, 55% 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. The next largest driver, according to 44% of the 100 respondents to the survey this report is base on, is the availability of financing and third is global expansion according to 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,’ said Michael Rogers, EY’s Global Deputy Private Equity Sector Leader.
There is a growing trend in fund formation targeted at specific oil and gas subsectors. 64% of the respondents believe that the fund raising opportunities in the next year will increase. 65% went on to say that they will actively raise funds which illustrates the point further.
The Latin American and Asia Pacific regions are expected to receive the highest increase in attention from PE firms over the next two years, however, the bulk of investment will no doubt still be focused on the US oil and gas industry. 82% of those surveyed expect PE activity to increase in Latin America and 79% said they expect it to increase in Asia Pacific. The four individual countries that are expected to see the highest level of PE by interviewees were listed as the US, China, Russia and Brazil.
‘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,’ said Andy Brogan, EY’s Global Oil and Gas Transaction Advisory Services Leader.
PE funds are indeed aware of the risks and challenges faced in different regions. The respondents rated Europe and Africa as locations with the highest political risk due to the Eurozone crisis and political instability. Latin America and the Middle East were thought of as having high operational risk which included heath, safety and environment issues. Fiscal and tax risks were the concerns for North America and Asia Pacific.
PE firms are expected to continue to diversify their investment portfolios, and new oil and gas opportunities are emerging worldwide. PE firms all over the globe are expected to continue to adjust their business strategies to respond to the evolving landscape and to target oil and gas subsectors accordingly.
Edited from various sources by Claira Lloyd
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