Over the last several months, private equity firms have been raising billions of dollars to invest specifically in energy. They're preparing to refinance sinking energy companies, buy their distressed debt and otherwise outright buy and own the production or the underlying assets that cheap oil has forced up for sale.
Just about every big PE firm has raised mega-billion dollar funds for deployment into the energy space: Warburg Pincus raised its first energy fund, a $4 billion effort last October. That's been followed by a $3.5 billion fund from Blackstone, $5 billion from Energy Capital Partners, and almost $10 billion in two funds by Carlyle Group (CG).
These players along with other PE monsters like Apollo Global Management (APO), KKR (KKR) and Tudor Pickering Holt have raised an estimated $38 billion dollars to deploy on energy fixed income and production assets.
Blackstone has raised a specific energy fund, even after pushing $500 million of fresh capital towards energy producer Linn Energy (LINE) in January of this year for 85% of future production in developing wells. The structure of the Blackstone/Linn deal has been a model for the kinds of structured finance and assets the private equity world is looking to purchase over the next two years. That deal was very advantageous for Blackstone and offers minimal risk, while the upside, especially if oil prices recover above $75, are huge.
One thing that seems clear is mega-funds raised for private equity firms will be deployed into assets, increasing PE's influence in energy. Besides just owning debt or underlying equity, we will see many of these firms take on the responsibility of real oil- and gas-producing assets as well as pipelines and storage. In many ways, Blackstone is about to become, at least in part, an energy company.
And, by all indications, a really well-positioned one. For a long-term investment in energy, it might be the best oil company out there right now.