The US oil and gas sector has begun to attract increased attention of private equity and now represents a new hot spot for career opportunities.
During the first quarter of 2012, eleven transactions of mergers and acquisitions took place in the industry, which is a 20-year high and 120 percent more activity witnessed during the same period last year. According to industry estimates, these deals had a total value of $11.5 billion.
Private equity has always been crucial for the success of players in the oil and gas sector, and creates the bridge needed to go public or for an acquisition. To reduce their risk, private equity firms often partner with management groups having extensive energy experience.
Smaller Deals
By March 31, 2012, a total of forty-four oil and gas deals with values greater than $50 million were concluded. During the same period, the average deal size jumped to $773 million from $768 million in the previous year. However, the deal volume and average deal size were lower than the last quarter of 2011.
Swimming Upstream
The decline in deal value could be a result of depressed natural gas prices. Private equity is set to commit more funds to the oil and gas sector as natural gas prices are at a 10-year low and investors want to take a long-term view of natural gas pricing. Most of the investment activity has been witnessed in the upstream sector, with investors pouring in an estimated $18 billion since the beginning of 2011. It is expected that private equity would also turn its head towards refineries in the downstream sector.
In the first quarter of 2012, upstream deals accounted for around 61 percent of activity. A total of 27 transactions, valued at $20.1 billion, were completed during this period. At the same time, seven oilfield services, six midstream and four downstream deals were also recorded.
Digging Deep
In addition, 13 deals with a value greater than $50 million related to shale plays and made up about 33 percent of total upstream deal value in the first quarter of 2012. When compared to the first quarter of 2011, private equity investments dropped by about 22 percent due to a decrease in the natural gas prices. As a result, major companies like Marcellus Shale would like to improve management and returns on existing operations and cash flow. But merger and acquisition activity in the region is not likely to receive a boost until there is an improvement in natural gas prices.
Private equity investments by international companies in US shale plays are being made largely through joint ventures. These investments are being driven by the country’s stable economic and political environment, and steady improvements in the technology related to shale resource plays. Private equity firms have responded well to advances in drilling techniques such as horizontal drilling and hydraulic fracturing. These techniques make the extraction of oil and natural gas from shale and other rock formations much easier. This provides private equity firms to make steady gains by investing in energy-hungry businesses.
Private equity activity in oil and gas is likely to remain strong throughout 2012 as the number of permits issued for drilling in the Gulf of Mexico has increased as compared to 2011. Private equity investors are focusing on the Gulf to gain exposure to traditional sources of energy and are looking at ways to avail the opportunities.
This will result in additional hiring needs and unique job opportunities for those with an energy background.
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