Energy investing: 5 charts that matter

Fundraising has slumped as LPs take a selective approach to the sector.

Private equity energy funds that closed in 2016 raised $13.78 billion, a post-crisis low and down sharply from $47.03 billion in 2015, with the tough fundraising environment continuing into 2017, PEI data show. But oil prices appear to have stabilised, After rising from under $30 in January 2016, crude oil prices are now “rangebound” between $45 and $55, says Doug Kimmelman, the founder of Energy Capital Partners. “In the most prolific basin in the US, the Permian Basin, oil producers can earn a decent profit when prices are at this level,” he says.

energy fundraising 2017

The oil price slump slowed dealflow allowing dry powder to build up among energy funds, says Kelly DePonte of placement agent Probitas Partners. That has made LPs more discriminating about where they commit new capital, he says, and is one reason for the fall in the average fund size since 2015.

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Track record is regarded as crucial: “We believe that the best and most consistent performing managers should continue to attract capital even though the competition between managers to secure that capital is going to be as fierce as we’ve seen it.” Jeff Eaton, a partner at placement agent Eaton Partners, told PEI. Some two-thirds of funds have failed to reach their targets in the year to date.

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According to secondaries advisory firm Setter Capital, the average top price of energy secondaries rose from 87.59 percent of net asset value to 89.41 percent between 31 May 2016 and the same period a year later. This is still well below the 95.17 level recorded on 31 May 2015, but a welcome recovery nevertheless. While this increase is certainly helped by the low baseline of 2016, the recovery appears to be built on good fundamentals.

“Although there are still a number of energy funds and GPs that have not fully recovered from the 2016 energy downturn, on a blended basis, pricing for this sector up 2.11 percent between May 2016 to May 2017,” says Maria Chateauvert, senior analyst at Setter Capital. “The uptick in pricing is mainly attributed to a rebound in commodities pricing and a stronger buyer demand, partly caused by a lacklustre 2016.”

energy secondaries 411

As interest in renewable power grows, investors are targeting solutions that can store surplus energy. Infrastructure and private equity investor Foresight Group is “actively acquiring energy storage assets in the UK”, says Dan Wells, a partner. The potential for investing in battery storage products was one of the hot topics of discussion at our Renewable Energy Forum in Berlin in March.

Panellists highlighted the strides made in technology to the point where electricity really can be stored, managed and used at the intervals it is needed. But investors still have their doubts. Just under half of attendees said they plan to invest in storage over the next 12 months but say that barriers remain, notably worries over revenue streams, as this delegate survey reveals.

 stoarage survey 411

For the full private equity picture on energy, read the PEI Investing in Energy Special,  published on 1 July, 2017.

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