Three Houston private equity firms have teamed up to comb the oil patch for small but lucrative investment deals left behind by banks and larger firms.
The private equity firms announced Tuesday they’ve formed an affiliate group called Argus Energy Managers to share information with each other and the companies they buy, making it easier for dealmakers to find profitable investments in the ocean of small exploration and oil field service companies that make up much of the U.S. energy industry. It’s an unorthodox move in the typically tight-lipped financial world, but the firms hope to find deals rivals will overlook.
“Banks don’t want to write a check if a company is too small,” said Charles Cherington, managing partner of Intervale Capital, one of the three private equity firms that formed the new group. “But there’s a lot of room for improvement at the smaller end of the market, which is one reason why returns are better there. You can actually make a difference.”
The three private equity firms, Bayou City Energy, Intervale Capital and Cibolo Energy Partners, have about $1.7 billion in assets under management, and they typically plow $10 million to $75 million into companies in which they invest.
Argus Energy Managers has an ownership stake in each firm. With banks still nursing financial wounds from the oil-market crash, and with the energy industry only in the beginning stages of a long-anticipated recovery, “It’s a good time to buy,” Cherington said. There are plenty of buying opportunities, he said, in places outside of coveted West Texas – fields in Oklahoma, North Dakota, Pennsylvania and elsewhere.
The private equity firms hope that, by sharing intelligence on oil field services, they can figure out which plays will turn hot. All told, private equity firms still have about $100 billion ready to pour into the oil and gas industry, raising funds even as they invest. Cherington expects private equity firms to pull off a string of deals this year, but he said very little of that capital will go to small oil field service companies.
That’s because many larger private equity firms have largely abandoned the sector. “They just can’t write checks small enough to make it work,” Cherington said.