HOUSTON – The world’s largest private equity shop is gearing up to pour billions into a deflated petroleum industry that, with the collapse of crude prices, has lost $1.6 trillion annually to invest in new oil.
Blackstone Group’s new $4.5 billion energy fund, which the company said Monday has closed, is now primed to make investments at a time when fewer lenders and debt investors are willing to advance money to distressed oil companies. And when producers can get financing, it’s generally twice as expensive as it was before oil prices careened from $100 last summer to less than $50 a barrel now.
Valuations for firms and their properties are set to fall dramatically, and that could make it easier for Blackstone and other private investors to take a big chunk of the bargain-priced deals set to hit the auction block this year, said David Foley, senior managing director and CEO of Blackstone Energy Partners.
“If anything, the current downturn might help get us off to a good start,” Foley said. With less money pumping into the oil industry, private equity dollars can go a lot further, he said. “For us as a private capital provider, having public markets closed and more expensive is helpful.”
Blackstone’s second energy fund will get support from the firm’s global private equity fund, bringing its ammunition for energy investments to $9 billion. The firm has an eye for everything from start-ups and leveraged buyouts of big public companies to investing in distressed assets, Foley said.
Blackstone in recent years has spent roughly a quarter of its $8 billion in energy-focused funds to take public companies private in leveraged buyouts. This year, there are probably 30 or more oil companies that have corporate debt with very high yields, and there may be more private firms with large amounts of bank debt to pay off, he said.
“But it doesn’t matter what the capital structure is, because if the assets are good, someone will own them,” Foley said. “You can fix a balance sheet; you can’t fix bad acreage.”
Blackstone said investor demand for its second energy fund blew past its $4.5 billion target. It drew investments from state and corporate pension funds, sovereign wealth funds, insurance companies, endowments, foundations and other sources. The firm’s first $2.4 billion energy-specific fund closed in September 2012.