Investment trio hunts for bargains after crude crash
HOUSTON (Bloomberg) -- A trio of Houston-based private-equity funds is sifting through the oil industry with a view to potentially reaching $4 billion of investments after the market crash created some bargains.
Argus Energy Managers, made up of three firms that invest in smaller explorers and service providers, expects to end the year with combined funds north of $2 billion and possibly double that within the next five years, Charles Cherington, co-founder of Argus, said Monday in a phone interview. The funds, which operate independently but share investment leads under the newly formed Argus umbrella, sees now as the time to invest, with an eye toward selling in the five-year window ending in 2025, he said.
"If you have cash, it’s a great time to be buying, particularly on the small end of the market," Cherington said. "It’s not going to happen in 2017, it’s not going to happen next year, but if you look at the map, by 2020, it’s inevitable we’re going to see a pretty major boom in the industry."
Wall Street is throwing the most money at U.S. energy companies since at least 2000, amid growing confidence that the industry is emerging from the worst downturn in a generation. Energy firms raised $6.64 billion in 13 equity offerings in January, drawn in by a combination of oil prices consistently near $50/bbl and a rush to drill that’s roughly doubled the rigs in use in the U.S. and Canada since May.
West Texas Intermediate, the U.S. benchmark, rose 9 cents to $48.31 at 9:58 a.m. in New York.
The three entities forming Argus are: Intervale Capital, which is focused on oilfield service providers; Bayou City Energy, investing in exploration and production companies; and Cibolo Energy Partners, making non-operated debt investments in explorers.
Each of the three is hunting for small- to medium-sized companies in the oil industry where they can make initial investments of less than $100 million, said Cherington, who is also a managing partner of Intervale.
Technology focus
Intervale is looking for service companies that can help operators boost their production, as well as fracking providers who offer a "technological differentiation," he said.
As today’s oil patch is increasingly stocked with underwater robots, remote sensors and electronic underground pumps that help lift crude in sagging wells, the world’s biggest oil service companies are turning to partnerships that will give them an edge in the technology arms race. It’s what helped push various deals in the oil patch including the merger of Baker Hughes Inc. and the oil and gas subsidiary of General Electric Co.
"There’s a very good chance prices will go back down again in the next year or so," Cherington said. "Challenges in the industry are going to remain. Valuations in the public markets have come off quite a bit in the last several weeks, but they’re still extraordinarily high by historical standards."
