Asia energy: Oil angle

According to AVCJ Research, there have been 82 private equity-related transactions in Asia's energy space in the last three years, totaling $8.6 billion. This compares with $168 billion across 490 deals by other investors. It is a huge gap but also a deceptive one.

PE and VC investors can claim some credit for the North American shale gas revolution. They supported the development of technologies that have contributed to identification and extraction of energy assets previously beyond reach. In a similar way, PE investors have carved out an angle in the exploration and production (E&P) space, supporting start-ups that work alongside the national oil companies and multinationals.

It is a trend that started in North America but has since spread to Southeast Asia. In Pearl Energy (backed by 3i Group, sold to Mubadala), KrisEnergy (backed by First Reserve, went public) and Tamarind Energy (very recently backed by The Blackstone Group), we have examples of Asia energy veterans - geoscientists, engineers and operations specialists - who left major oil companies for private equity-funded start-ups.

Finding these groups is not easy, but their business model is reasonably straightforward: go where the energy giants are not. Opportunities range from identifying unconventional resources such as coal-bed methane to focusing on stranded conventional deposits that are difficult to access or have been abandoned because oil majors conclude that the output no longer justifies the expense of being there. They leverage their local knowledge - plus the nimbleness of a start-up - to get the job done.

Speaking with industry professionals, the consensus view is that private equity money will continue to find its way not only into Asian E&P players but into the energy sector as a whole.

This is in part driven by global PE firms expanding their energy coverage into Asia - Blackstone is a seasoned operator in the sector but Tamarind is its first E&P deal in the region - and in part by signs that early entrants have profited from the experience. Another opportunity may come from divestments by multinational groups that, for whatever reason, are looking to exit certain Asian assets.

And if a private equity firm isn't comfortable with direct exposure to energy projects, there are numerous ways to ride proxy on increased activity in Southeast Asia oil and gas, whether it is providing tug boats that ferry workers to and from oil rigs or high-tech imaging services to geology teams.

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• Topics
• Industrials
• North America
• resources
• energy
• The Blackstone Group
• USA