OIL’S plunge makes energy a great investment for the coming years, according to Blackstone Group LP’s Stephen Schwarzman and Carlyle Group LP’s David Rubenstein. For private equity firms, it’s also been painful.
More than a dozen firms — including Apollo Global Management LLC, Carlyle, Warburg Pincus and Blackstone — have lost a combined US$11.7 billion (RM40 billion) in 27 publicly-traded oil producers since June, when crude prices reached this year’s peak before beginning their six-month slide, according to data compiled by Bloomberg.
Stocks of buyout firms with exposure to energy have slumped, and bond prices suggest some closely held oil producers may struggle to pay for their debt.
“It’s been a really volatile period, and frankly that’s how Saudi Arabia wants it,” said Francisco Blanch, head of global commodity research at Bank of America Corp. “This is a battle of endurance.”
Brent crude oil slumped 47 per cent to about US$61 late last week from its high this year of US$115 a barrel, dragging down energy stocks, as the Organisation of Petroleum Exporting Countries sought to defend market share amid a United States shale expansion that’s adding to a global glut.
Kosmos Energy Ltd, Antero Resources Corp, EP Energy Corp, Laredo Petroleum Inc and SandRidge Energy Inc, each of which is backed by a buyout firm as its largest shareholder, fell by an average of 50 per cent in US trading from oil’s peak through December 19 here. Warburg Pincus is the top stakeholder in Kosmos, Antero and Laredo; Apollo is the largest investor in EP Energy; and Carlyle, with a partner, owns the biggest piece of SandRidge, according to Bloomberg data.
Apollo has US$5 billion invested in energy debt and equity, including companies that are closely held. Carlyle has directed 10 percent of its US$203 billion in assets into the industry. Blackstone, the second-biggest shareholder in Kosmos, has backed drilling projects off Ghana’s coast and in the Gulf of Mexico.
Carlyle increased its exposure to the industry in December 2012 when it invested US$424 million to share revenue from NGP Energy Capital Management. NGP’s holdings include Memorial Production Partners LP, which declined 39 per cent; Rice Energy Inc, which fell 21 per cent; and RSP Permian Inc, which dropped 17 per cent.
New York-based Warburg Pincus saw its holding in Laredo decline 66 per cent, while Kosmos, a West Africa-focused exploration and production company, has held up better, dropping 26 per cent.
EP Energy was bought by Apollo and others for US$7.15 billion in May 2012 and taken public early this year. Apollo and its clients, which put in about US$1.8 billion of equity, are down about 20 per cent on their initial stake, based on the latest closing share price. Apollo cited EP as a key contributor to a two per cent decline in its private equity holdings during the third quarter.
The bonds of some closely held buyout-backed companies are falling as well.
Samson Resources Co’s US$2.25 billion of bonds due in 2020 dropped to 43.5 cents on the dollar from a peak of 103.5 cents in August. KKR & Co and its partners acquired Samson in December 2011 for US$7.2 billion, the most ever paid in a leveraged buyout of an energy producer, including US$4.1 billion of equity. Bloomberg