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PE investment in oil and gas hits five-year peak

The number of deals and combined value of oil and gas investments rose significantly in 2012, according to a study from EY.

Private equity investment in oil and gas companies reached $27.2 billion in 2012, a 17 percent jump from the prior year and the highest amount during the past five years, according to a study conducted by EY and Mergermarket.

Fund managers completed a total of 56 private equity oil and gas deals last year, a 24 percent increase compared to 2011.

“There has never been more private equity money aimed at the industry,” Jon McCarter, oil & gas transactions leader at EY Americas told Private Equity International. “My estimate is more than $100 billion is being raised in funds focused on oil and gas”.

Increasing shale gas exploration and an improving macroeconomic environment have helped spur growth in North American oil and gas investments, according to the study, which surveyed roughly 100 private equity executives, about half of which are active in North America’s oil and gas sector.

“Many people are telling us there is so much available activity in the US”, EY global deputy private equity leader Michael Rogers told PEI. “Trends in shale gas are leading people to be more aggressive into the US, but it’s not to say there isn’t a strong global interest.”

Roughly 82 percent of survey respondents expect private equity activity in Latin America’s oil and gas sector to increase in the coming years, while only 8 percent expect a decline in oil and gas investments. One out of five investors surveyed indicated they’ve previously invested in oil and gas companies in the region.

Latin America’s oil and gas industry is led by Brazil, which is expected to become one of the world’s top 10 oil producers by 2035.

“Colombia and Brazil are the two hottest, but we’ve also seen some activity in Peru among others,” McCarter said.

Mexico’s proposed energy sector reforms will also open more investment opportunities, according to the study, though operational, health, safety and environmental risks continue to burden the broader Latin American region.

Asia-Pacific’s oil and gas industry is also expected to receive increased interest from private equity investors, as nearly 80 percent of those surveyed expect activity in the region to rise. Liquefied natural gas, deep water exploration and unconventional resources are highly-sought-after prospects in Asia-Pacific, where China is expected to account for the largest share of the projected growth in global energy use in the next 20 years, followed by India, according to the study.