Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. ALTERNATIVES
July 23, 2012 01:00 AM

Private equity energy 'rescue' deals bring good press, more capital

Arleen Jacobius
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Mike Mergen/Bloomberg News
    Reprieve: An 11th-hour investment saved Sunoco's Philadelphia refinery.

    Private equity firms have come to the rescue of struggling energy companies and their local communities, gaining much-needed public support with promises to save jobs and keep energy flowing.

    These transactions are providing a respite from the drum beat of bad press private equity began getting at the height of the Republican presidential primary campaigns — and still continues.

    Good will and positive press are not all that The Carlyle Group, KKR & Co. LP, The Blackstone Group LP and others are receiving from these investments.

    Energy investments, especially natural gas, are extremely hot right now. Generalist alternative investment managers are bringing piles of capital to get in on the financial bonanza expected from building the infrastructure, support systems and plants needed to turn the U.S. into the natural gas supplier to the world.

    The amount of capital being raised by the larger private equity firms to invest in energy doubled to $33 billion in the past three years, said Andrew Brown, senior investment consultant in the London office of Towers Watson & Co., citing data from Preqin, an alternative investment research firm in London.

    Also, deals are getting larger. Private equity firms closed 18 energy deals with a combined value of $8.38 billion in the second quarter, up from 27 deals valued at $2.42 billion in the first quarter and 34 deals worth $10.86 billion in the second quarter of 2011, according to Seattle-based data research firm PitchBook Data Inc.

    Mainstream private equity funds are now partnering with energy-focused funds on some of these transactions, said David Fann, president and CEO of La Jolla, Calif.-based private equity consulting firm Torrey Cove Capital Partners. “Liquefied natural gas should be huge” in terms of attracting money, he said.

    Consultants are also boosters for the sector.

    “Most limited partners and investors who have spent time studying the energy sector see this as a good opportunity,” Mr. Fann said. “We think, for most clients, a greater exposure to energy is a good tactical shift.”

    Not alone

    Private equity firms are not making these energy investments alone. Examples of large firms teaming with energy-focused funds include the $1.25 billion investment in Chesapeake Energy Corp. by Blackstone, TPG Capital and energy investment firm EIG Global Energy Partners in April. Also, KKR joined specialist private equity energy firms Natural Gas Partners and Crestview Partners, and Japanese trading company Itochu Corp., for November's acquisition of oil and gas firm Samson Investment Co., Tulsa, Okla.

    The most recent transaction was Carlyle's July 2 rescue of Sunoco Inc.'s Philadelphia refinery, which was slated to close before Carlyle's investment. The size of the investment is not being disclosed, but two-thirds of the more than $200 million in capital improvements is being supplied by Carlyle.

    In February, KKR's money management arm, KKR Asset Management LLC, joined with Morgan Stanley Capital Group Inc. and Brussels-based AtlasInvest to provide a capital injection that kept Petroplus Holding AG from closing a refinery in Coryton, England. Petroplus, an insolvent Swiss oil and gas company, is the largest owner of refining capacity in the United Kingdom. The consortium provided financing that helped keep the refinery open, said William Sonneborn, member and head of KKR Asset Management in San Francisco.

    Both Carlyle's joint venture with Sunoco and the Petroplus transaction had the side benefit of a huge amount of good press and support for the private equity industry. The Carlyle/Sunoco transaction had the support of the White House, the governor, mayor and a local congressman, said Christopher Ullman, spokesman for Washington-based Carlyle.

    Along with the public-relations bonanza, Carlyle received a $25 million investment from the state of Pennsylvania because the firm is expected to save 850,000 permanent jobs and create 100 to 200 more permanent jobs, in addition to several thousand construction jobs, Mr. Ullman said.

    Carlyle is not saying how much it is investing, but funds from Carlyle and the state are slotted to be used for $200 million in capital projects related to the refinery, including building a high-speed rail spur in the facility, Mr. Ullman said. The investment is being made through the Carlyle Energy Mezzanine fund and the Equity Opportunity fund, a midcap private equity and special situations fund.

    The Petroplus deal, on the other hand, does not appear to be headed for a happy ending. While the consortium's cash infusion saved the U.K. plant from immediate closure while a buyer for the plant was found, the plant is expected to close anyway, said Kristi Huller, KKR spokeswoman. (Coincidentally, Petroplus itself was the result of a Carlyle deal, which the firm exited in 2007 by taking the company public. Investors ended up earning five times their original investment on the deal, sources said.)

    Still, the consortium was praised for giving the administrator, PricewaterhouseCoopers, time to conduct an orderly sale and keep oil flowing into the refinery to be processed, saving jobs for four months, Ms. Huller said.

    Not all the energy transactions by alternative investment firms involve struggling companies.

    In May, Blackstone Group made a $2 billion investment in Cheniere Energy Partners LP, which has a natural gas facility in western Cameron Parish, La. A total of $3.4 billion will be used to convert the plant to an export facility from an import one, making it the only export facility in the continental U.S., said Christine Anderson, spokeswoman for New York-based Blackstone. Half of Blackstone's investment is from Blackstone Energy Partners, which is not yet closed, and the other half from $16 billion Blackstone Capital Partners VI.

    Huge opportunity set

    The opportunity set is huge, Mr. Brown said, citing the large need for capital to convert the U.S. energy infrastructure to exporting natural gas from importing it.

    “Five years ago, no one was talking about shale. Five years ago, the U.S. government was talking about importing natural gas from places like Russia ... today (government and industry executives are) talking about exporting natural gas,” he said.

    The conversion requires everything from new piping and refining facilities to new transport ships, Mr. Brown noted. And as the public shifts to natural gas from a reliance on oil, the price of natural gas, which is now low, should rise, he said.

    But the good-news energy stories might not last forever.

    There's a giant sinkhole in the room when it comes to natural gas investments. That is the environmental impact of the process used to extract shale gas — slick-water or hydraulic fracturing, also known as fracking.

    “The reality is that people don't know the impact of the drilling on the water table and the earthquakes,” making environmental fallout probably the biggest investment risk, Mr. Brown said.

    “If (scientists) find that fracking contaminates the water, ruins the water table or causes earthquakes ... it would put a chill in the opportunity,” he said.

    “If the environmental impact leads to regulation, that would drive down returns because regulation would make the fracking technique more expensive.”

    Some private equity managers are avoiding that risk and the controversy surrounding fracking by investing in only the technology, rather than the actual drilling, he said. They are investing in a “closed loop” technology that might be a solution to the negative environmental impact of fracking should there be more regulation, Mr. Brown added.

    In addition to the environmental impact, there is a danger that too much capital is rushing into the sector.

    “We like energy. It's definitely an interesting sector, but again you have to be very selective,” said Benoit Verbrugghe, senior managing director and head of AXA Private Equity U.S. in New York.

    “We are cautious because ... when you have a lot of people taking a look at the same sector, you have to make sure at least the selection of the (general partner) and the underlying companies are very strict.”

    Related Articles
    Blackstone closes energy fund at $2.5 billion
    'Solo' investing makes for good returns
    KKR Mezzanine Partners gets new chief
    KKR's Sonneborn to retire
    Recommended for You
    KKR_Logo_i.jpg
    KKR assets rise 1.6% in quarter, up 7% for year
    Inflation_Calculator_i.jpg
    Duff & Phelps CIO David Grumhaus expects mild recession
    NYSE-Traders-2021_i.jpg
    Investors expect to increase private markets allocations – survey
    The Institutional Investor's Guide to ESG Investing
    Sponsored Content: The Institutional Investor's Guide to ESG Investing

    Reader Poll

    January 25, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    Show Me the Income: Discovering plan sponsor and participant preferences for cr…
    Morningstar Indexes' Annual ESG Risk/Return Analysis
    The Future of Infrastructure: Building a Better Tomorrow
    Outlook 2023: Opportunity in a volatile world
    Research for Institutional Money Management
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing