Fifty-five percent of private equity (PE) executives cite the growing capital requirements of the oil and gas industry as the foremost driver of their investment activity in the industry, according to a newly-released report Financing the Future Energy Landscape: Private Equity Trends in Oil and Gas by EY and Mergermarket.

The next largest driver is availability of financing, according to 44% of the 100 respondents surveyed, followed by global expansion (36%).

“The oil and gas industry is in a period of major capital investment. PE firms are well positioned to be a key player in driving future growth of the industry. Fitting well into their evolving model, PE firms can leverage their operational and commercial insight, oil and gas sector expertise and financial discipline to influence outcomes,” says Michael Rogers, EY’s Global Deputy Private Equity Sector Leader.

Fund formation targeted at specific oil and gas subsectors is a growing trend, with 64% of the survey respondents believe that the fund-raising opportunities in the next year will increase. Illustrating this point further, 65% of the respondents say they will actively be raising funds.

Increased interest in emerging markets

While the bulk of PE investment in the oil and gas industry is heavily focused on North America and is likely to remain so, Latin American and Asia-Pacific regions are expected to receive the highest increase in attention from PE firms over the next two years. Eighty-two percent of respondents expect PE activity to increase in Latin America and 79% expect it to increase in Asia-Pacific. When asked which four countries will see the highest level of PE activity, respondents most commonly cite the US, China, Russia and Brazil.

Andy Brogan, EY’s Global Oil and Gas Transaction Advisory Services Leader comments, “We are seeing an influx of capital investment into the emerging markets. The risk profile of emerging markets investments can be very different from those of developed markets. Companies are exercising caution, but optimism around the potential returns from acquisitions remains high.”

PE funds are acutely aware of the risks they need to manage and the risks considered most important vary from region to region. With the effects of the Eurozone crisis and political instability in North Africa still being felt, political risk was rated highest in Africa and Europe.

For Latin America and the Middle East, respondents singled out operational risk, including health, safety and environmental (HSE), as one of the main threats to investments in these regions. In North America and Asia-Pacific, fiscal and tax risks were the primary concerns.


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