Strategic perspectives

Favorable asset valuations and the scarcity of more traditional financing sources are set to drive private equity activity in the oil and gas sector.

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The sector’s need for growth capital will drive activity in the coming year. In the past decade, PE has made great inroads into the oil and gas sector, as cheap credit from the US Federal Reserve financed the resources boom in North America. In 2014, North American PE firms accounted for 67% in volume and 83% in value of all global PE oil and gas sector deals, far outstripping all previous years.

While the downturn in the industry has undoubtedly challenged the firms looking to protect their investments and grow their portfolio companies, those that are willing to commit fresh capital (and potentially hold onto the investments for a longer period of time) could benefit from the current low-for longer price environment.

Our survey finds that the main driver for PE activity is the emergence of favorable valuations for industry assets. Almost two-thirds (64%) say that declining company valuations will provide good buyout opportunities. From this, we conclude that PE firms believe that valuations will favor the buyer. This will ensure firms get the right assets — ones that are properly priced and valued.

EY - Global PE deals in the oil and gas sector, 2007—16