financing the future energy landscape - ey...4 | financing the future energy landscape private...
TRANSCRIPT
Financing the future energy landscapePrivate equity trends in oil and gas
Contents
Introduction 2
Private equity in oil and gas: strategic perspectives 4
Evaluating growth prospects and challenges 6
12
14
Conclusion: what’s next? 16
17
4 | Financing the future energy landscape Private equity trends in oil and gas
Introduction
Private equity (PE) is in the midst of a transformational period. Having assisted their portfolio companies to survive
once again on the offensive. The result is a sector that is
investment landscape. PE is expanding beyond its traditional focus on leveraged buyouts into an array of new asset classes.
and fund-of-funds investments.
with which they do business — increased transparency, greater
are specialized by sector and geography.
genuinely attractive returns are still available.
It is characterized by:
underpinned the unconventional oil and gas “revolution,”
Structural changes to the industry, including: the rise
is expanding, with new entrants joining specialist and generalist
renewable energy.
PE activity in the oil and gas industry
Value (US$b) Volume
2008 18.4 65
2009 3.6 34
2010 8.3 51
2011 23.2 45
2012 27.2 56
*Excludes lapsed/withdrawn deals Source: Mergermarket.com
across the oil and gas industry.
relationship between PE and the oil and gas industry. To this
The oil and gas industry
6 | Financing the future energy landscape Private equity trends in oil and gas
Private equity in oil and gas: strategic perspectives
Growing demand, opportunities abound
1 The industry
is access to resources or capital, technology or related costs, there
Private equity’s interest and expertise The oil and gas industry continues to push the technical boundaries
55%
41%
36%
24%
17%
15%
12%
Percentage of respondents
0% 20% 40% 60% 80% 100%
Access to technological innovation
Market dislocation opportunities
Commodity prices
Access to high-growth markets
Global expansion
Capital requirements
The primary ways PE can add value to an oil and gas company
55%
gas projects.
63%17%
9%
7%4%
Growth capital
Geographic expansion
Providing operational expertise
Placing effective leadership/executives
Providing access to networks
The main drivers of PE activity in the oil and gas industry
1 International Energy Agency (IEA), World Energy Outlook 2013
7Financing the future energy landscape Private equity trends in oil and gas |
with tight corporate credit conditions that are now loosening.
41%
40%
35%
32%
19%
17%
16%
Percentage of respondents
0% 20% 40% 60% 80% 100%
Exiting current investments
Raising new capital
Making acquisitions to existing portfolio companies
Improving operational performance of portfolio companies
Making new platform acquisitions
Making organic investments to existing portfolio companies
Top two priorities for respondents’ funds in the next 12—24 months
generate good returns
Europe-based PE partner
8 | Financing the future energy landscape Private equity trends in oil and gas
Evaluating growth prospects and challenges
Hotspots for private equity
particularly active in the unconventional oil and gas growth story in
Latin America
82%
20%
Expect the region to see increased PE interest
Currently active in the region
77%
49%
Expect the region to see increased PE interest
Currently active in the region
North America
Expected growth in PE interest by region
Shale gas and oil are
Expectations of PE interest in oil and gas in the next 12—24 months
Percentage of respondents0% 20% 40% 60% 80% 100%
Latin America
North America
Africa
Middle East
Europe 50% 12% 38%
64% 18% 18%
68% 8% 24%
77% 8% 15%
8% 10%82%
79% 2% 19%
Increase Decrease Remain the same
9Financing the future energy landscape Private equity trends in oil and gas |
Africa
Middle East
50%
30%
Expect the region to see increased PE interest
Currently active in the region
Europe
79%
20%
Expect the region to see increased PE interest
Currently active in the region
68%
12%
Expect the region to see increased PE interest
Currently active in the region
64%
32%
Expect the region to see increased PE interest
Currently active in the region
10 | Financing the future energy landscape Private equity trends in oil and gas10 | Financing the future energy landscape Private equity trends in oil and gas
Start with the exit in mind
creation throughout the ownership period.
Never underestimate the importance of the network
Emphasize alignment at the outset of the dealEnsuring that all parties are aligned at the outset is
Plan on bringing something to the table besides capital
Get management right at the outset
Be clear on risk appetite
Key imperatives for PE in the emerging markets
11Financing the future energy landscape Private equity trends in oil and gas |
to acquire energy supplies globally are also typically prepared to pay higher prices to secure prospective targets. More intense
deepwater exploration
unconventional resources.
gas industry
Percentage of respondents
0% 20% 40% 60% 80% 100%
Too much PE capital in the market
Lack of viable opportunities
Establishing viable exit strategies
Overvalued targets
Competition from cash-rich corporates
Regulatory issues 54%
39%
31%
20%
20%
18%
14%
12 | Financing the future energy landscape Private equity trends in oil and gas
Risk versus reward
Business Pulse: Oil and gas report
oil and gas industry. In recent years, regulation governing
Additionally, operational and HSE-related regulation has been tightened and expanded. Uncertainty exists as the industry
The number one ranked risk by region
Operational risk/HS&E
Latin America
Middle East
Fiscal and tax risk
North America
Political risk
Africa
Europe
understand potential
evaluation purposes.”Canada-based PE partner
13Financing the future energy landscape Private equity trends in oil and gas |
Ranked level of risk associated with each factor in the following regions
Africa Europe Latin America Middle East North America
shareholder rights shareholder rights
shareholder rights shareholder rights shareholder rights
shareholder rights
Highest ranked risk Lowest ranked risk
14 | Financing the future energy landscape Private equity trends in oil and gas
42%
11%
47%
12 months (compared to previous 12 months)
Easier
Remain the same
Percentage of respondents0% 20% 40% 60% 80% 100%
Africa
Europe
Latin America
Middle East
North America 49% 51%
56% 44%
40% 60%
57% 43%
55%45%
42% 58%
and seller?
Yes No
whether it is debt or
institutional investors.”US-based PE partner
15Financing the future energy landscape Private equity trends in oil and gas |
62%
raising opportunities in the next year will increase. Illustrating
players to invest,” says a US-based vice president.
respondents pegged average leverage or debt-to-capital ratios
valuation gap between buyers and sellers in the oil and gas
right valuation and end up not doing the transaction.” However,
trends are creating
between the buyer and
right valuation and end up not doing the transaction.”European-based PE partner
16 | Financing the future energy landscape Private equity trends in oil and gas
consistent and predictable returns. Given the unpredictable nature
“players” — non-traditional, non-industry owners, which have
Greatest supply of targets Reduced exposure to movement of commodity prices
Attractive valuations Consistent/predictable returns Ease of exit
The primary drivers by industry subsectors
29%
26%9%
15%
15%
6%
Upstream
11%
19%
19%
30%
2%
19%
Midstream
33%
11%
33%
11%
12%
Downstream
25%
10%
40%
25%
Targeting and focusing
17Financing the future energy landscape Private equity trends in oil and gas |
oil or natural gas prices, than the other subsectors. This is in
respondents rate this subsector as the one that provides the
Investments in energy alternatives
returns will be considerably high and can be predicted when
survey respondents say they are also currently pursuing other
86% of respondents say they are currently pursuing other energy options
27%Petrochemicals/Chemicals
67%Renewable energy
56%Power and utilities
11%Mining
18 | Financing the future energy landscape Private equity trends in oil and gas
presents growth prospects given increasing oil and gas spending,
A European-based PE partner says: “PE activity in the oil and gas industry is increasing in every region, including Europe. These
their strategy and respond accordingly.
in oil and gas. As would be expected with an open-ended question,
Conclusion: what’s next?
success would be another “revolution.” As one US-based vice
in oil and gas equity.
PE oil and gas players.
using an exhaustive database. This proprietary intelligence and historical
EY contactsDale Nijoka
Jeff Bunder
Michael Rogers
Andy Brogan
Jon McCarter
About Mergermarket
EY | Assurance | Tax | Transactions | Advisory
About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and
How EY’s Global Oil & Gas Center can help your businessThe oil and gas sector is constantly changing. Increasingly uncertain
with extensive experience in providing assurance, tax, transaction and
How EY’s Global Private Equity Center can help your business
only and is not intended to be relied upon as accounting, tax, or other
EY | Assurance | Tax | Transactions | Advisory