Private Equity firms may raise energy asset bids as oil stabilises, Baker & McKenzie expert says

Private Equity firms could step up their hunt for energy sector assets as the oil price stabilises, according to Baker & McKenzie partner Mona Dajani, an industry veteran who has worked on complex acquisitions for over two decades.

“The oil and gas market and PE firms' relationship with it is quite cyclical in nature. As oil prices start to rise gradually and settle within a range, PE players might feel it is as good a time as any to go for a mid to small-sized oil and gas exploration and production (E&P) company,” Dajani told delegates at the Baker & McKenzie Oil and Gas Institute.

PE firms that do not have “unencumbered legacy issues” will make decent acquisitions, she added. “Furthermore, PE players always believe they can operate more efficiently, whether they are energy specialists or not; so do not discount the possibility of new innovating operating models from them in a challenging industry climate.”

The senior Baker & McKenzie partner also noted that infrastructure funds, coming in at the mezzanine finance level, were offering very attractive costs of debt. “Based on market evidence of what’s on offer, from a legal perspective, it is also very covenant light. That’s not to say lending to the oil and gas sector under current conditions doesn’t come with strings attached.”

Elsewhere, speaking at the same event, William Snyder, leader of the corporate restructuring group at Deloitte’s transaction and business analytics unit, said hedge positions have protected cashflow for many players within the oil and gas sector.

"But PE might be the answer right now as far as distressed companies are concerned. It will be a while before high yield comes back into the market, so PE firms have a huge opportunity to seek the right kind of oil and gas asset at the right price."