U.S. Oil & Gas Fundraising Calms Down

PE fundraising in the sector has been strong so far in 2014, but can’t compete with the two previous years

Private equity players continue to view investing in oil and gas funds as a smart move.. But after two years of record PE fundraising for the sector, can 2014 play catch-up after a sluggish start?

According to data from Preqin’s Funds in Market service, as of Aug. 1 there were 51 private equity funds targeting the oil and gas sector that were raising capital totaling $35B.Twenty  of those were focusing on natural resources and looking to raise $26B.These numbers are impressive, but so far 2014 is not on track to beat the record high oil and gas fundraisings of the previous two years.

The best years for investments in U.S. oil and gas funds were 2012 and 2013, according to the Preqin data, with $22B and $29B in fundraising respectively. This was a steep increase from 2011 when a total of $13B of capital was raised in 18 funds.

Data from PitchBook also shows a decline in U.S. PE energy fundraising so far in 2014. According to data compiled for Privcap, there has been $16.89B of capital raised as of Aug. 18, in 18 funds*. At this pace, total funds raised in 2014 are likely to fall well short of the $43.08B raised in 23 funds in 2013, according to PitchBook. There was $33.44B of capital raised in 2012, in 29 funds.

The number of investors showing interest in natural resources funds versus other sectors has also fallen during the first half of 2014. According to Preqin figures,  the proportion of PE investors looking to invest in natural resources funds in the next 12 months slid from 8 percent in December 2013 to 5 percent in August 2014.

Riverstone Global Energy and Power Fund VI,from Riverstone Holdings, is the largest fund currently raising capital, targeting $7.5B for global oil and gas—but also energy and power— opportunities. The largest to close so far this year was the EnCap Flatrock Midstream Fund III that was focused on midstream oil and gas infrastructure. The fund raised $3B in four months.

That EnCap fund had a target of $2.25B and was the third of the firm’s midstream series to hit its hard cap. EnCap’s head of investor relations and fundraising, Chuck Bauer, tells Privcap: “In the past four to five years, you’ve seen more institutional investors moving energy fund commitments out of PE and placing it into their real asset allocation or creating a specific natural resource allocation.”

Energy deal flow globally has also cooled compared to 2011’s high of $50.86B in 166 deals, according to PitchBook data. There has been $24B of capital in 83 deals as of Aug. 18 this year, after $42.97B in 158 deals in 2013.

* PitchBook’s qualifications for inclusion in the data are if it’s an energy-type fund, has an energy-related term in its name, or has made at least five investments and had at least 25 percent of those investments in energy companies.