BLACKSTONE'S ENERGY FUND

PENEWS - The world's biggest listed private-equity firm is marketing its latest energy fund to capitalize on rebounding oil prices and tighter financial discipline among public oil producers.

Blackstone Group LP is planning a first close this quarter on more than half of the roughly $4.5 billion it seeks for its third energy fund, according to a person familiar with the matter. The New York firm is raising the pool three years after it sealed $4.5 billion for its previous energy fund, people said.

Bloomberg News previously reported on the fund's target.

Private-equity firms see new opportunities emerging as publicly traded oil-and-gas producers come under increased pressure from stock investors to focus more on returns on capital than on production growth. Private-equity firms are stepping in as capital providers to the industry while demand for oil is expected to grow faster.

When Blackstone finished raising its last energy fund in 2015, plummeting oil prices shook the oil-and-gas industry, generating bargains for private equity. Now with U.S. oil prices trading above $71 a barrel for the first time since 2014, those bargains will be harder to find.

The prospect of investment opportunities in oil production has already led to a capital glut. U.S. private-equity firms raised a total of $24.7 billion across 32 energy-focused funds last year, up from $17.3 billion and 38 funds in 2016, according to data provider Preqin Ltd. Other large private-equity firms amassing new capital to make energy bets include Energy Capital Partners, which has been targeting $6 billion for its latest fund, and Quantum Energy Partners, which is seeking $5.25 billion.

After oil prices started sliding in mid-2014, Blackstone swooped in to buy assets on the cheap. The firm invested $3 billion in energy in 2016 "just as prices bottomed," Blackstone President Jonathan Gray said in an April media call.

As of March, Blackstone Energy Partners II LP was generating a 13% internal rate of return with a 1.3 multiple on invested capital, according to the firm disclosed in first quarter's financial results.

Energy investments helped drive growth in Blackstone's private-equity portfolio in the last quarter, even as public markets fell during a volatile period in the stock market. Executive Vice Chair Hamilton "Tony" James said in the April call that "it didn't hurt to have energy, oil prices up a lot."

As oil prices rise, Blackstone will continue to lean on a mandate to invest in different regions and sectors to seek out the most attractive opportunities.

Blackstone's private-equity energy team, led by Senior Managing Director David Foley, invests globally across different sectors, including upstream, midstream and oil field-services, and renewable power.

The firm, for example, plans to use its energy platform to back another gas-power project in Mexico, the person familiar with the matter said. Fisterra Energy, a company Blackstone majority owns, last year invested in the Tierra Mojada gas-power plant in Guadalajara alongside the private-equity firm.

Blackstone also expects to have more opportunities to invest in or along with public-energy companies as they find it harder to raise capital in the stock market, according to the person. In October, Blackstone agreed to buy a joint-venture interest in Targa Resources Corp.'s Grand Prix natural-gas pipeline, which runs from the Permian Basin to Mont Belvieu, Texas.

With public exploration and production companies less willing to spend money on assets that don't generate significant cash flows at the outset, private equity-backed companies can drill more wells that would make their assets more attractive to these buyers. This will make the sector a more capital-intensive play, with private-equity firms likely needing to hold and develop assets longer to meet their return objectives.

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Earlier:

2015, March, 20, 19:10:00 OIL HUNTING Private equity groups including Carlyle and Blackstone are to deploy billions of dollars in a hunt for acquisitions across the oil and gas industry, with a collapse in oil prices expected to lead to a wave of asset sales.