A vital source of funding for the US oil sector is drying up as private investors retreat, prompting stricken operators to make “last gasp” efforts to boost production and cash flow to lure in buyers. The exodus mirrors shale’s experience in public markets, where even before last year’s crash investors had soured on an industry notorious for poor returns and weak environmental, social, and governance performance.
“Private equity has been decimated in this downturn,” said Wil VanLoh, head of Quantum Energy Partners, one of the largest PE investors in the shale patch. “The total quantum of money available out there to private companies has shrunk and is going to stay much, much smaller.” Now scores of oil producers are “dying on the vine”, said Ben Dell, managing partner at rival Kimmeridge, as they are left without the regular cash infusions to bankroll the capital spending needed to keep on drilling. The private flight comes despite oil’s recovery to $60 a barrel — a price that allows many operators to break even and has raised investors’ hopes of a profitable final exit from the sector.
Those notions gained strength this month when Pioneer Natural DoublePoint, which made national news last year when Donald Trump delivered a stump speech in front of one of the company’s rigs in Texas, was backed by VanLoh’s Quantum, Apollo Global Management, Magnetar Capital and Blackstone credit.