As oil and gas prices continue to fall, much of the capital being raised today is for distressed energy investments.
But that distress has not happened yet and might not happen for another two or three years, said Andrew Brown, senior investment consultant in the London office of consulting firm Towers Watson & Co.
Capital raised over the past two years is preventing energy investment valuations from falling to distressed levels, he said.
But it's not just the energy private equity managers who are angling to invest in distressed energy investments; pure distressed managers also are seeking to invest in the energy sector.
“Most distressed investors are eyeballing energy companies,” said David Fann, president and CEO of San Diego-based private equity consulting firm TorreyCove Capital Partners LLC. “Many energy companies levered up over the past couple of years, and some will have a tough time servicing their debt load either because they can't produce at a profit or anticipated business activity won't occur in the short term.”
While there might not yet be wholesale distress, the dislocation in the energy sector caused by the drop in oil prices is leading to investment opportunities, said Hunter Carpenter, partner in the Dallas office of private equity firm RedBird Capital Partners LLC.
“It's a good time to be a buyer ... a lot of companies have troubled balance sheets,” said Mr. Carpenter, who heads RedBird's energy business. “They are not forced sellers but … have to raise capital.”
With investors awash in capital, energy companies — especially large public companies — are looking to sell smaller assets or assets that might no longer fit their business models, he said.