In a landscape where many investors are hesitant, Carlyle, the European private equity group, is making a strategic move into the oil and gas sector.
They’ve appointed Tony Hayward, former CEO of BP, to lead a new venture focused on the eastern Mediterranean. The initiative launched with a significant acquisition of Energean’s assets in Egypt, Italy, and Croatia for up to $945 million.
This bold step comes at a time when many European players are divesting from oil and gas assets, creating opportunities for Carlyle.
Europe’s Market Dynamics
The European market for oil and gas assets presents a unique situation. While the US sees multibillion-dollar shale deals, Europe lacks eager buyers. Major oil companies face pressure from shareholders to reduce upstream production, and smaller exploration companies are more inclined to sell than buy.
This dynamic is evident with Energean, opting to focus on a major Israeli project and divesting non-core assets acquired cheaply.
Carlyle’s acquisition of Energean’s assets is estimated at $5.4 per proven and probable barrel, below the net present value of reserves according to Wood Mackenzie analysis.
This translates to fields capable of generating potentially $400 million in EBITDA annually, with ongoing capex of up to $200 million, leaving substantial cash flow to repay the initial investment within the typical private equity lifecycle.
The Exit Strategy Dilemma
The challenge for financial buyers like Carlyle lies in the exit strategy. Previous private equity roll-ups in the North Sea faced difficulties realizing value. Carlyle’s Neptune was eventually sold to Eni, while EIG-backed Chrysaor merged with Premier Oil, leading to Harbour Energy, which later expanded significantly by acquiring Wintershall’s assets.
Finding a buyer this time around could be even more challenging as the energy transition progresses.
However, recent setbacks in decarbonization goals and policy shifts might give Carlyle hope. If the energy transition unfolds slower than expected, a resurgence in demand for oil and gas could create potential buyers for these assets in the future.
Carlyle’s strategy is essentially a wager that the energy transition will happen, but at a much slower pace.
The Long-Term Outlook
As the world grapples with balancing energy needs and environmental concerns, Carlyle’s investment represents a calculated risk. The ultimate outcome of this venture will depend on the pace and trajectory of the global energy transition. Carlyle is betting on a gradual shift, allowing them to capitalize on oil and gas assets in the interim. Whether this gamble pays off remains to be seen.