Private equity funds, former oil execs eye Southeast Asia energy assets

AAG Energy Holdings

01/12/2016 23:00

* Looking to invest in assets in or close to production 
    * More realistic and distressed valuations driving interest 
    * Oil majors downsizing amid low prices, high debt 
 
    By Jessica Jaganathan 
    SINGAPORE, Dec 2 (Reuters) - Flush with cash, private 
equity-backed firms and former oil industry executives are 
eyeing energy assets in Southeast Asia as prolonged lower crude 
prices drive oil majors hungry for cash to divest or seek 
additional funds.  
    The firms are banking on a rapid rise in economic growth in 
Southeast Asia - a region ripe with cheaper and smaller oil and 
gas fields which are nearing production - to boost oil demand 
and in turn enable them to resell the assets within a few years 
at a profit.  
    Global investment firms such as KKR and Co  KKR.N  and The 
Carlyle Group  CG.O  are backing Southeast Asia-focused oil and 
gas companies while at least half a dozen senior oil and gas 
professionals have left illustrious careers with oil majors to 
join funds or set up their own companies, industry sources told 
Reuters.  
    "There is definitely a trend of more private equity firms 
coming in and looking for good valuations and good 
opportunities," said Michael Arruda, a partner in Baker Botts 
law firm in Hong Kong.  
    "(They) are coming in particular as some of the oil majors 
are going through downsizing and selloffs and they (private 
equity firms) are looking for the right sized pieces to pick 
up."  
    Investors are zeroing in on upstream assets in Southeast 
Asia where economies are flexible and smaller, "digestible" 
assets are becoming available, said Arruda.      
    While private equity firms have tried Southeast Asian energy 
previously, at least one of them had to exit after being hit by 
the plummet in oil prices last year. 
    But lower valuations of oil and gas assets are prompting 
renewed interest in the sector, said Philip Jeyaretnam, chief 
executive of law firm Dentons Rodyk.        
    In an Ernst and Young survey earlier this year of 100 
managing directors and partners from private equity firms, all 
of them expected to see more involvement in the Asia-Pacific oil 
and gas sector, up from 79 percent in a 2013 survey. 
    While long-term fundamentals for oil demand remain robust, 
low oil prices are putting pressure on the sector, resulting in 
operational challenges and increasing debt, said Sanjeev Gupta, 
head of Ernst and Young's Asia-Pacific Oil and Gas division.  
    Industry tracker Preqin says about 17 percent of private 
equity firms are investing in oil and gas globally and about 
two-thirds of them have a preference for Asia.   
      
    WHO'S GETTING INVOLVED  
    While actual oil and gas investments by private equity in 
Southeast Asia have yet to materialise in significant numbers, 
more firms are indicating their increased interest and attending 
deal-making meetings, oil and gas lawyers told Reuters. 
    So far, Mandala Energy, a southeast Asia focused oil and gas 
company backed by KKR is one of few to have invested. 
    It will invest almost $180 million for a 35 percent stake in 
the Lemang production-sharing contract from Ramba Energy's 
 RAMB.SI  subsidiary PT Hexindo Gemilang Jaya in Indonesia last 
year, according to Mandala's website.  
    KKR declined to comment on its oil and gas investments, 
while Carlyle Group did not respond to Reuters' request for 
comment.  
    Private equity-backed firms typically budget about $100 to 
$200 million for each investment and are looking for assets 
either in production or close to production they can exit in 
5-10 years, the oil and gas lawyers told Reuters.  
    Bill Lafferrandre, who recently retired from ConocoPhillips 
 COP.N  after 31 years to co-found exploration and production 
firm Sea Dragon Resources, said it was a "great time" to acquire 
assets. 
    "The quality of assets that are in the market are 
improving...and buyer and seller expectations are coming more 
into balance now as prices have stayed lower for quite a bit 
longer," he said.  
     Lafferrandre is currently looking to acquire upstream oil 
and gas assets in countries such as Indonesia, Vietnam and 
Thailand, using funds from private equity and other investors.  
    He estimates there are more than 50 attractive oil and gas 
assets in the appraisal to development stages, and sellers' 
expectations of asset prices have come down by 25 to 30 percent 
in the past year.  
    Global private equity firm Warburg Pincus opened an office 
in Singapore this year to explore opportunities across Southeast 
Asia, while Warburg Pincus backed-AAG Energy  2686.HK , private 
equity funds Global Natural Resource Investments, Blue Water 
Energy and Kerogen Capital are looking to invest in the region, 
industry sources said.      
     AAG said it submitted a bid to acquire certain oil and gas 
assets but did not specify if these assets were in Southeast 
Asia. Warburg Pincus declined to comment while the other 
companies did not respond to Reuters' request for comment.    
    At least half a dozen senior management staff at oil and gas 
companies, including Lafferrandre, Paul Blakeley who spent more 
than 20 years at Repsol-owned Talisman Energy Inc  REP.MC  and 
Geoff Freer, who was with Mubadala Petroleum, are also looking 
to raise funds to invest in the energy space in the region, 
according to their LinkedIn profiles.  
 
 (Additional reporting by Anshuman Daga; Editing by Lincoln 
Feast) 
 ((Jessica.Jaganathan@thomsonreuters.com; +65 6870 3822; Reuters 
Messaging: jessica.jaganathan.thomsonreuters.com@reuters.net)) 
 
Keywords: ENERGY PRIVATEEQUITY/SOUTHEAST ASIA