- Firm gives credit line to exploration and production startup
- Private equity firms see more energy deal making this year
Private equity firm Warburg Pincus agreed to invest as much as $500 million in an oil and gas producer after commodities prices plummeted.
Warburg Pincus will give RimRock Oil & Gas a line of equity to help the startup company acquire and develop energy assets in North America, the companies said in a statement Wednesday. The money is coming from New York-based Warburg Pincus’s $12 billion private equity fund and its $4 billion energy fund.
While private equity firms have collected more than $20 billion for energy deals in the past two years, the money has largely remained on the sidelines, in part because oil producers have been unwilling to sell. That may quickly change, according to Deloitte LLP, which last week said more than one-third of listed producers worldwide are at high risk of bankruptcy, as their collective debt surged to about $150 billion and cash flows dwindled.
A global oil glut has caused a collapse in prices and led producers worldwide to reduce drilling, fire workers and cut dividend payments. West Texas Intermediate crude has slumped 70 percent since its mid-2014 peak and hit a 13-year low of $26.21 a barrel earlier this month.
“In light of the current commodity price environment, we believe there is a compelling opportunity to acquire and develop large-scale assets,” Jim Fraser, RimRock’s chief executive officer, said in the statement.
The sentiment was shared this week at the SuperReturn International conference in Berlin, where dealmakers from firms including Carlyle Group LP and Blackstone Group LP said they expect private equity firms to increase investments in oil and gas as producers become forced sellers.
Speaking at the conference Wednesday, Warburg Pincus Co-Chief Executive Officer Joe Landy said he expects oil producers and the banks that lent to them to take a hit as hedges continue to expire. Landy said oil and gas companies in which his firm has invested are “doing well.”
Among Warburg Pincus’s largest oil and gas holdings are Kosmos Energy Ltd., Antero Resources Corp. and Laredo Petroleum Inc., whose stocks have each fallen by more than half in the past two years, with Laredo slumping 84 percent.