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Private equity drills into crisis playbook for new energy deals

January 28, 2015, 6:14 PM UTC
A pumpjack brings oil to the surface in the Monterey Shale
A pumpjack brings oil to the surface in the Monterey Shale, California, April 29, 2013. The vast Monterey shale formation is estimated by the U.S. Energy Information Administration to hold 15 billion barrels of technically recoverable oil, or four times that of the Bakken formation centered on North Dakota. Most of that oil is not economically retrievable except by hydraulic fracturing, or fracking, a production-boosting technique in which large amounts of water, sand and chemicals are injected into shale formations to force hydrocarbon fuels to the surface. Picture taken April 29, 2013. REUTERS/Lucy Nicholson (UNITED STATES - Tags: BUSINESS ENERGY) - RTXZ5IU
Photograph by Lucy Nicholson — Reuters

I know this is a bit of an exaggeration, but: If you are a large private equity firm not raising a new fund to explicitly take advantage of recent energy market dislocation, then you might not be a large private equity firm.

Apollo Global Management (AGM) and The Blackstone Group (BX) each are raising first-time funds to buy up energy sector debt. So is Riverstone Holdings, a former energy-investing partner of The Carlyle Group (CG). Kohlberg Kravis Roberts & Co. is seeking $3 billion for a new distressed energy fund.

It feels a lot like what we saw following the financial crisis, when lots of big buyout shops launched distressed credit and financial services-focused vehicles with much short investment horizons than would be featured in a traditional private equity fund. Most of those worked out, including those focused on TARP assets, thus creating an attractive template to dust off and modify.

Got to wonder how long until private equity firms expand from distressed energy into the broader commodities sector. Caterpillar (CAT) CEO Doug Oberhelman yesterday said during an earnings call that he was expecting sustained pricing weakness in everything from iron ore to coal, and private equity firms Bain Capital and Private Equity Partners today bailed out of a big Australian mining sector deal due to commodity price concerns.

I kind of like the ring of Carlyle Copper Credit Partners…