How is Blackstone targeting oil and gas investments
There are private equity folks who just buy existing companies that are performing very well and have decided to put themselves up for sale, often via an auction process.
We find these situations often result in the buyer overpaying for the business and they generally aren't a productive use of our time unless we have some unique advantage we bring to the situation or a very contrarian view. If you can maintain price discipline, you wait for points in the cycle where you can get a reasonable deal but you can't do that year after year. That's why we also invest in startups, greenfield projects and growth equity deals.
Our approach is earlier stage risk capital. We will do everything from onshore early stage shale development to high impact offshore oil exploration at a cost of $100 million per well.
We recruit outstanding management talent to help us build, fix, and grow to scale assets and turn them into world class companies. Then when our work is done from a value added standpoint and the companies are clearly on a good growth trajectory, we'll look to take those companies public. If we've done our job, we've also created companies with a strategic value and so we can have either an ExxonMobil or CNOOC, or the public market all looking to buy say an oil business that we've built.
Private equity firms have recently grabbed headlines with big investments in oil and gas, notably shale drilling. What is PE's role in conventional and unconventional resource development?
I do think that private equity and the entrepreneurs we back play a necessary and important role because some of the bigger publicly-traded and state-owned energy companies either don't move quick enough or they don't want to take the risk especially on pure exploration or greenfield development projects. They want to move in on a big scale when the resource is delineated."
Two of the most notable private equity deals in the energy space are Blackstone and Warburg Pincus' initial backing of Kosmos Energy and Carlyle, Goldman and First Reserve's venture investment in Cobalt International Energy. Can those types of investments be replicated?
Because they have been successful on such a large scale, they may encourage others to pursue similar strategies, but the real limitation to successful, sizeable startup ventures is identifying truly exceptional management teams and marrying them up with the right opportunity, where there is some running room to create significant value.
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-- Written by Antoine Gara in New York