Energy secondaries nearly ready to ignite

Another slump in oil prices and a rise in primary deals is leading some to believe that energy secondaries activity could pick up early next year.

With another slump in energy prices and investment activity slowly rebounding in the primary market, secondaries firms looking to purchase energy funds may finally be ready to make a move.

The volume of primary private equity investment in energy experienced a slight bump to $10 billion in the second quarter from $9 billion in the first quarter, with larger increases in the number of deals, suggesting that firms are targeting smaller investments, according to a report from the Private Equity Growth Capital Council.

The price of crude oil futures has been hovering in the mid- to high-$40s in the past month, compared to the $50s a barrel before summer, and earnings for oil companies are down, leading some to believe that distressed assets in energy secondaries may finally be ready to be purchased.

“There hasn’t been any distressed energy assets on the market,” said one market participant. “That’s about to change. A lot of people think there will be good opportunities at the beginning of next year.”

He added that a lot of mega private equity funds dipped their toes in energy investing before prices started to fall and didn’t really understand it. At the right discount and once funds’ net asset values stabilise, this could make for some attractive opportunities for secondaries buyers, he added.