E&P Private Equity Investments Abroad

By Josh Sherman, Opportune LLP, and Alasdair Green and Callum Gray, Anderson Anderson & Brown LLP, for Oil & Gas Investor 

Private markets, particularly in private-equity (PE) investments, are growing globally. Following the 2014 to 2016 oil and gas industry downturn, we now have returned to a more stabilized market—and this time with more advanced technology than ever before.

The U.S. PE market leads the world both in terms of size and growth, deploying billions of dollars in 2017 and 2018 to increase domestic shale production and improve takeaway capacity for delivery to the U.S. Gulf Coast’s refineries and export facilities. This is contributing to the rejuvenation of U.S. onshore production, so much so that the U.S. is now the world’s leading crude oil producer.

The volume of proven reserves and resulting drilling activity are expected to continue increasing under a stabilized price environment, but at what point do the number of PE teams and commitment dollars exceed the availability of domestic economic assets? What about PE investments in E&P abroad? We have seen some significant investments made in experienced British teams in the U.K. North Sea.

The Rise of U.S. Domestic Shale

Simultaneously with the oil and gas downturn, significant advances in fracking technology opened up huge new opportunities in the unconventional oil and gas market; however, prices were still too low to make many basins economically viable.

This has all changed now, however. With a stable, and relatively high, oil price and commercially viable fracking technology, money has flooded into unconventionals, most notably in the U.S. onshore, and especially, the Permian Basin. As of April 2018, 22% of all drilling rigs in the world were concentrated in the Permian.

With this, we are starting to see a new trend of U.S.-led oil and gas investment realignment activity. In 2018, operators such as ConocoPhillips Co. and Chevron Corp. have begun divesting their positions in the U.K. North Sea in order to turn their attention to U.S. opportunities in West Texas unconventionals. Alaska has also seen more interest from within the U.S., which is deemed by some to retain plenty of opportunity and reserves, with low extraction costs.

Has the economic viability of U.S. onshore development put the brakes on new U.S. PE investment into international opportunities?


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