Private equity firms, former oil execs eyeing Southeast Asia’s energy assets
As prolonged lower crude prices drive oil majors hungry for cash to divest or seek additional funds, private equity-backed firms and former oil executives are looking to Southeast Asia’s energy assets.
The firms are banking on a rapid rise in economic growth in Southeast Asia – a region ripe with cheaper and smaller oil and gas fields which are nearing production – to boost oil demand and in turn enable them to resell the assets within a few years at a profit.
Global investment firms such as KKR and Co and The Carlyle Group are backing Southeast Asia-focused oil and gas companies while at least half a dozen senior oil and gas professionals have left illustrious careers with oil majors to join funds or set up their own companies, according to industry sources.
Private equity firms are looking for the right sized assets to pick up as some of the oil majors are going through downsizing and selloffs, said Michael Arruda, a partner in Baker Botts law firm in Hong Kong.Investors are zeroing in on upstream assets in Southeast Asia where economies are flexible and smaller, “digestible” assets are becoming available, he added.
In an Ernst and Young survey earlier this year of 100 managing directors and partners from private equity firms, all of them expected to see more involvement in the Asia-Pacific oil and gas sector, up from 79% in a 2013 survey.
While long-term fundamentals for oil demand remain robust, low oil prices are putting pressure on the sector, resulting in operational challenges and increasing debt, said Sanjeev Gupta, head of Ernst and Young’s Asia-Pacific Oil and Gas division.
Industry tracker Preqin says about 17% of private equity firms are investing in oil and gas globally and about two-thirds of them have a preference for Asia.
While actual oil and gas investments by private equity in Southeast Asia have yet to materialize in significant numbers, more firms are indicating their increased interest and attending deal-making meetings, according to oil and gas lawyers.
So far, Mandala Energy, a Southeast Asia-focused oil and gas company backed by KKR is one of few to have invested.
It will invest almost US$180 million for a 35% stake in the Lemang production-sharing contract from Ramba Energy’s subsidiary PT Hexindo Gemilang Jaya in Indonesia last year, according to Mandala’s website.
Private equity-backed firms typically budget about US$100 to US$200 million for each investment and are looking for assets either in production or close to production they can exit in five to 10 years, the oil and gas lawyers said.
Bill Lafferrandre, who recently retired from ConocoPhillips after 31 years to co-found exploration and production firm Sea Dragon Resources, said it was a “great time” to acquire assets. He is currently looking to acquire upstream oil and gas assets in countries such as Indonesia, Vietnam and Thailand, using funds from private equity and other investors.
He estimates there are more than 50 attractive oil and gas assets in the appraisal to development stages, and sellers’ expectations of asset prices have come down by 25-30% in the past year.
Global private equity firm Warburg Pincus opened an office in Singapore this year to explore opportunities across Southeast Asia, while Warburg Pincus-backed AAG Energy, private equity funds Global Natural Resource Investments, Blue Water Energy and Kerogen Capital are looking to invest in the region, industry sources said.
At least half a dozen senior management staff at oil and gas companies, including Lafferrandre, Paul Blakeley who spent more than 20 years at Repsol-owned Talisman Energy Inc. and Geoff Freer, who was with Mubadala Petroleum, are also looking to raise funds to invest in the energy space in the region.