Energy Basics Trump Obama/Romney Trade: Q&A With Blackstone's David Foley

NEW YORK ( TheStreet) -- Meaningful discussion on energy policy during the first presidential debate between Barack Obama and Mitt Romney took a back seat to a seemingly endless schooling on taxes, the national debt and the budget deficit.

For energy investors who are looking to invest billions in the sector in coming years, that may be the point.

In late September, TheStreet spoke to David Foley, the head of private equity giant Blackstone's ( BX) energy unit - called Blackstone Energy Partners - about how he's looking to invest in the sector given what appears to a big divide between Democrats and Republicans on key issues like regulation, subsidies and how to develop oil, gas and renewable energy resources over the long-term.

Foley, who has been with Blackstone since 1996 and was charged with building the firm's vaunted energy investing unit, repeatedly spoke about how he's looking to make energy investments that aren't contingent on a presidential election outcome or specific promises to change a regulation or subsidy.

Instead, Foley says Blackstone is combing the U.S. and the rest of the world for energy investments that have financial and political support already in place, which may make them a winning proposition without political bets. According to Blackstone's Web site, the firm has never lost money on an energy investment, after plowing $6.3 billion in the sector since 1997.

The lions share of Blackstone's energy investment has gone into joint venture's and private companies aren't available to ordinary stock investors - for instance a multi-billion dollar investment in German offshore wind farm and a bet on solar energy in India -- but the fund is also a key investor in publicly traded companies like Kosmos Energy ( KOS), which it helped to launch. In February, Blackstone invested $2 billion to help Cheniere Energy Partners ( CQP) -- roughly 90% owned by Cheniere Energy ( LNG) -- build a $10 billion natural gas liquefaction plant to export gas internationally, where prices trade at multiples of the U.S. market.

Notable in Foley and Blackstone's energy investing approach is a lack of short term bets like reading tea leaves for election year policy change, and instead, a focus on long-term exploration and development trends that work regardless of who takes the White House.

Throughout the private equity industry, a surge in shale drilling investment signals one opportunity where election year politics do little to color the investing outlook.

In Wednesday's debate, both candidates spoke about leveraging shale resources to foster U.S. energy independence, in coming years. Foley spoke to TheStreet about private equity's role in developing the resource and what billions in PE industry holdings may mean for oil giants like ExxonMobil ( XOM) who may look at M&A to grow production reserves, as firms exit investments.

Here's our conversation with Foley and his perspective on combing for energy sources, regions and projects that may be Blackstone's next investing hit.

TheStreet: You've recently closed a $2.5 billion energy fund, how will the elections impact your investment plans?

David Foley: What we try to do is have an investment case that works well with either party and frankly is compelling enough that it will get done regardless of who is in the White House.

Depending on what kind of deal you are talking about, sometimes there is a federal approval element to it or an EPA element, and sometimes it's inherently local or state based. We try to make sure all constituencies feel their concerns have been addressed and that they can find reasons to be supportive. Foley highlights the Champlain Hudson Power Express, a high voltage hydroelectric transmission line connecting resources in Quebec to New York City energy consumers

TheStreet: How is Blackstone investing in alternative energy?

Foley:In terms of alternative energy, we are a big fan of solar and wind under the right kind of regulatory regime. Hydroelectric is the overlooked renewable source of energy that's really quite attractive if you have the right hydro resource. Africa and South America have exceptional opportunities to develop hydroelectric power facilities and are doing so as a cheaper, cleaner alternative to fossil fuels.

As it relates to solar and wind, they are subject to the domestic country's subsidy regime and each is different. The United States has largely tried to develop solar and wind through tax subsidies and federal loan guarantees. The effectiveness of these policies has, at times, been limited by uncertainty around whether or not the programs will be extended into subsequent years. In 2011, Blackstone made a EUR1.2 billion investment in a German offshore wind project called Meerwind, backed by a mix of government and private market financing

TheStreet: How is Blackstone targeting oil and gas investments

Foley: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.

TheStreet: 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?

Foley: 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."

TheStreet: 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?

Foley: 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.

See why Scott Sperling of THL Partners is focusing on Mitt Romney's focus on economic growth over a check on the candidate's budget math, for more on private equity and election year politics.

For more on private equity, see why Goldman Sachs is cutting its private equity future by half. Also see why a dividend is key to Carlyle Group's stock strength.

-- Written by Antoine Gara in New York

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