Market Overview

Private Equity Betting Big On U.S. Energy Boom

Private Equity Betting Big On U.S. Energy Boom

The U.S. energy sector is in the middle of a historic boom, as improved fracking and horizontal drilling technology have allowed for more efficient oil and natural gas extraction.

According to the federal government, oil production in the U.S. will likely continue to rise at least through 2019, but technological advances could drive the boom to continue through 2040.

While most sectors of the economy have struggled to simply recover pre-financial crisis employment levels, oil and gas employment has surged 40 percent since 2007.

A study by PriceWaterhouseCoopers suggests that more than a million energy-related manufacturing jobs could be added to the U.S. economy by 2025. That number may seem high, but the Energy Information Administration recently reported that oil production in the U.S. increased by nearly one million barrels per day in 2013 alone

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While the oil and natural gas industry has capitalized on the domestic energy surge, others are also aiming to profit from expanding energy production. Within the past year, several private equity firms have raised big money for new energy funds, and the funds seem to be drawing major interest from investors.

Big Money Raised

The Blackstone Group L.P. (NYSE: BX) is expected to exceed its $4 billion target for its new energy fund by the time it finishes its money-raising process. Morgan Stanley (NYSE: MS) raised $500 million for Blackstone’s energy feeder fund in a single day, and the fund was oversubscribed by four times.

Warburg Pincus LLC has also raised $4 billion this year for a new energy fund. The original goal for the fund was $3 billion, but after so much investor enthusiasm, Warburg Pincus increased the size of the fund by $1 billion

Earlier this year, KKR & Co. L.P. (NYSE: KKR) raised $2 billion for a new oil and gas fund. As of the end of 2013, $8.7 billion of the private equity giant’s $94.3 billion in assets was devoted to energy and infrastructure.

Private equity players seem very eager lately to get a piece of American oil and gas, but it remains to be seen how long the energy wave will last.

Could the recent American energy boom be setting the industry up for another costly bust like the one that occurred in the U.S. oil industry in the 1980’s? Or will an increase in worldwide demand for oil drive prices to new highs and continue to provide profitable opportunities for energy investors?

With the new flurry of options available for private equity investors, there’s certainly no shortage of opportunities to place a bet on the future of American energy.


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