Home' Trinidad and Tobago Guardian : February 19th 2015 Contents BG8 ENERGY
BUSINESS GUARDIAN www.guardian.co.tt FEBRUARY 2015 • WEEK THREE
ENVELOPE #1 -- TECHNICAL PROPOSAL
ENVELOPE # 2 -- FINANCIAL PROPOSAL
Oil s plunge may have helped con-
sumers, but it has hurt big private-
equity firms. Earlier this month
Apollo Global Management
announced that its profits were
down by 79 per cent, year on year,
in the three months to December 31. This week KKR
and the Carlyle Group said that they were smarting,
too, with KKR s profits down by 94 per cent and
Carlyle s by 68 per cent. Energy-related assets, whose
valuations have fallen with the oil price, are largely
Spurred on by the shale boom in America, pri-
vate-equity funds have invested heavily in the energy
sector. More money was raised for energy buyouts
in America in 2014, and more deals were made, than
ever before, according to Preqin, a data provider.
"All sorts of folks who would never have dreamed
of oil and gas piled in, often loading companies with
debt," says Joel Moser of Aquamarine Investment
Partners, a fund that has invested in the sector for
Private-equity firms invested mainly in oil-field
services, which support the industry but do not own
any oil themselves. Because such companies are
involved in a variety of activities, there is greater
scope for the type of restructuring that private-equity
folks specialise in, such as selling off less-profitable
units or firing people. However, the buyout firms
also had begun to invest in oil companies themselves,
a more straightforward bet on the price of oil.
Carlyle s earnings were dragged down by its stake
in Sand Ridge Energy, a debt-laden oil-and-gas explo-
ration company, which lost 58 per cent of its value
during the past quarter and has announced that it
is mothballing most of its drilling rigs. Shares in EP
Energy, an oil-and-gas company of which Apollo
owns about a quarter, are down by 40 per cent.
Samson, an American producer partly owned by
KKR, also has fallen in value.
One buyout firm that got away relatively unscathed
was the last of the "big four," Blackstone. Sceptical
about US$100 oil, it started selling energy assets in
Despite such losses, private-equity investors are
more interested in the sector than ever, according to
Anton Schneider of the Boston Consulting Group.
Buyout funds love distressed assets. Many see the
situation now as akin to the collapse in property
prices in 2008, when investors who had borrowed
too much---including many private-equity funds---
were forced to sell as prices plummeted.
Blackstone s chief executive, Stephen Schwarzman,
said in December that the turmoil would be a "won-
derful, wonderful opportunity for us."
The giddiness is not without reason. Prices for
energy-related assets have been slashed indiscrim-
inately. Some oil-services firms that cater to ongoing
operations, such as helicopters and maintenance for
offshore rigs, may have been hit unfairly hard and
could well bounce back. Companies that specialise
in more expensive ways of getting oil out of the
ground, such as offshore drilling rigs and construction
vessels, already were suffering, partly due
to overbuilding in good times, before the
price fell, and now are in even worse shape.
Private equity thrives on such mispricing.
Another way to cash in is through credit
provision. High-yield debt in the energy
sector is now three times the volume it was
in 2008, according to Credit Suisse. Cheap
oil is imperiling borrowers, such as American
shale producers, who need cash to stay afloat
until prices, they hope, rebound. With banks
unwilling to lend and many companies des-
perate not to sell assets, private-equity firms
can name their terms when financing energy
Such thoughts have sent the buyout titans
into a fund-raising frenzy. Blackstone alone
says that it has a war chest of US$9 billion
available for energy investments, not to
mention the energy-related debts it might
buy through credit funds. Warburg Pincus,
another private-equity firm, closed a US$4
billion energy fund late last year. Apollo also
is raising a multibillion-dollar fund.
All of which holds out a ray of hope for
those private-equity funds that are currently
sitting on devalued energy investments,
provided that they can afford to wait it out.
@2015 The Economist Newspaper Ltd.
Distributed by the New York Times Syn-
For private equity, oil prices are a shock
...and, sometimes, a boon
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