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Money Talks: Juniper Capital Carves Own Momentum Amid Volatility
Money Talks: Juniper Capital Carves Own Momentum Amid Volatility

Yahoo

time16-06-2025

  • Business
  • Yahoo

Money Talks: Juniper Capital Carves Own Momentum Amid Volatility

Energy-focused private equity firms have closed on more than $28 billion worth of capital commitments during the last eight months, a staggering sum compared to the anemic annual totals raised since the pandemic. Still, it's a fraction of the fundraising peak in 2017, when firms pooled some $73 billion for oil and gas enterprises, according to Buyouts, a research firm that tracks middle-market funds in the U.S. But while closing the largest of the recent funds raised by Quantum Capital Group and EnCap Investments took about twice as long as it did to hit a target during the 2010s, it seems momentum could be growing in favor of private equity. During the first half of 2025, a steady stream of private equity news reveals a growing pile of dry powder. Suffice to say, it's a good time to engage with these financiers. Oil and Gas Investor reached out to a variety of private equity firms that have remained committed to growing the industry throughout its peaks and troughs. In this first installment of a multi-part series, Edward Geiser, executive managing partner at Houston-based Juniper Capital, shares his perspective on the consolidation trend and private equity's ability to pivot along with the cyclical oil and gas industry. Deon Daugherty, editor-in-chief, : Where are the opportunities—and challenges—for investment following the upstream consolidation trend? Edward Geiser, executive managing partner, Juniper Capital: The trend toward consolidation in the oil and gas industry is part of a larger theme in the space, which is focused on maximizing the long-term cash value to investors. You can see this with companies becoming more efficient in developing their assets through reduced rig and completion time as well as recompleting older wells and trying newer approaches such as U-shaped wells and lateral lengths over 3 miles long. Relating to consolidation, companies are seeking to maximize their intrinsic value by acquiring assets which allow them to be more efficient, thereby generating more cash per barrel or Mcf produced, and to lengthen the duration of that cash flow by adding inventory. For upstream private equity, the goal is to create and grow businesses that offer what potential buyers will want in the future. That means companies that operate efficiently, generating strong cash flow per unit produced, and that have significant running room for future development. To that end, opportunities I see in the current market include acquiring non-core assets of companies that have completed acquisitions over the past few years. Many of the consolidating companies have assessed their current portfolios and concluded that some of their assets are unlikely to receive much capital or focus in the next several years, and therefore, they are seeking to exit those assets. In many cases, the assets will be more valuable with private ownership because of the additional focus and development capital. One of the key challenges I see in the current market is that the quantity of potential buyers with sufficient financial wherewithal is materially smaller than it was 10 years ago. The number of publicly traded oil and gas companies has shrunk and is likely to continue to shrink as consolidation continues, and the IPO market remains challenging. Additionally, the aggregate amount of private equity capital and the number of firms focused on investing in oil and gas is also smaller. This translates into generally longer investment timeframes than in the past, and it requires private equity to build and manage companies that can generate returns from operational cash flow instead of relying upon a quick sale at an attractive value. RELATED Money Talks: UMB Bank on Impacts of Upstream Consolidation DD: How will dealmaking take shape this year? EG: Given the number of very large transactions that were announced and closed the past few years, it was inevitable that the total dollar value of oil and gas deals would eventually decline, and we have been seeing that decline in aggregate transaction value over the past few quarters. In the first quarter of 2025, it appeared that there would be a healthy number of smaller transactions as public companies sought to monetize non-core assets and many private companies sought an exit. With the volatility in oil prices since the beginning of the second quarter, many planned sale processes have been paused, which I think will push overall transaction volume lower for at least the next few months. That being said, there are still a number of meaningful transactions being discussed, which could be announced soon, and I think the market for natural gas assets remains relatively strong. Overall, assuming we get some stability in oil and gas prices later this year, I think 2025 will be a moderate year for oil and gas dealmaking, with at least a couple corporate-level transactions that will further change the playing field as well as a number of smaller assets sold from public and private sellers. DD: How will the current market volatility influence your firm's investment strategies during the next 12 to 18 months? EG: While our strategy remains consistent, we tend to be more active during periods of heightened market volatility as the need for capital is greater. Our strategy continues to be to invest transformational equity capital into high-quality U.S. oil and gas assets in partnership with experienced management teams. In terms of the types of assets we are seeing as opportunities in the current environment, our last two investments were acquisitions from private equity portfolio companies and included producing wells along with development potential in the Permian Basin. Prior to that we made investments in both the Permian and Eagle Ford where public companies were the sellers. I think we will continue to see a mix of asset types and seller types across virtually all the major basins, and our focus will be to distill a large opportunity set to those that we feel offer the best risk-adjusted return, even if the current volatility in commodity prices continues. DD: How has your investor group evolved? How might market volatility influence their engagement? EG: We have smart, experienced investors and many of them have remained consistent over the last 10 years. With our most recent fund, some of our new investors included large pension plans and several family offices. Some of our investors in earlier funds were not able to participate in our most recent funds due to their restrictions related to investing in fossil fuel activities, but we maintain good relationships with those groups, and I think it's possible their investment policies change over time. All along, though, we have had a diverse mix of investor types including pensions, endowments, foundations and family offices and that has remained relatively consistent. Since most of our investors have been investing in traditional energy for many years, they are experienced with the ups and downs of investing in oil and gas. With their experience, they tend to be very consistent and supportive whether oil and gas prices are high or low. DD: Which exit strategies make the most sense in this environment and why? EG: The optimal exit strategy in the current environment really depends on the location and characteristics of the asset base one is seeking to exit. In my opinion, the current market requires more thoughtfulness and creativity than the market in the past because there are fewer buyers and those potential buyers that remain are very selective. For relatively large assets with significant drilling inventory located proximal to large acquisitive public companies, a sale for cash at a reasonable value is achievable. For large assets in one of the major natural gas regions, like the Marcellus or Haynesville, a sale for cash or even an IPO is a potentially viable option, as we saw recently demonstrated with the IPO of Infinity Natural Resources. For other assets, either in a basin with less current activity or with less perceived inventory value, a sale for cash in the current market is unlikely to include significant value for future development potential. Some of the options a potential seller has in those situations include continuing to hold the assets and generating returns from free cash flow over time or to pursue a strategic combination with a public or private company. Neither of these approaches result in a final exit; however, they may offer the best route for maximizing long-term value and returns. DD: To what extent is access to capital a challenge for private oil and gas companies? EG: In my view, access to either debt or equity capital is significantly more challenging than it was 10 years ago; however, it has improved over the past few years. Relating to equity capital, there are fewer private equity sponsors focused on the oil and gas space as compared to a decade ago and the aggregate amount of capital raised by those sponsors is materially less. Over the past couple of years, we have seen an increase in aggregate capital raised by private equity firms relative to a few years ago, and new investors, like large family offices, have increased their participation in providing capital directly to private oil and gas companies. For debt capital, putting in place a traditional reserve backed loan remains an option, and a number of groups are also available to provide loans that do not fit into a traditional bank loan structure. That being said, the number of banks participating in traditional RBLs is smaller than in the past and generally covenants and restrictions for any debt instrument are much tighter than a decade ago. So overall, access to capital remains challenging, but it is achievable for many private oil and gas companies with attractive assets. DD: What will be the net effects of crude oil rangebound in the $50s? EG: If WTI oil prices remain below $60 per barrel for a significant period, I expect U.S. oil production to begin to decline. While the dip below $60 [in April] is the first time WTI has gone below that threshold in over four years, many large producers with some of the best remaining drilling inventory in North America have already announced reduced capital spending in 2025. One can also see the reduction in activity with the declining oil rig count and frac spread count over the past several months. It typically takes at least a couple of months before reduced development activity shows up in overall oil production, so I think we will begin to see a slight decline in U.S. crude oil production in the second half of this year. I think the reduced activity level is likely to keep oilfield service and equipment pricing relatively low with the notable exception of casing, which has increased in pricing due to tariffs. I also think a reduced level of growth in associated natural gas production across the U.S. is likely to be supportive of generally higher natural gas prices, particularly as new LNG and power generation facilities become operational over the next few years. Finally, I think we could see additional consolidation if oil prices remain relatively low. While oil well economics are obviously better when oil prices are high, lower oil prices could encourage companies to become more acquisitive. Potential sellers generally do not want to transact during a perceived low in the commodity price, but I think the use of a mix of cash and equity consideration has the potential to address valuation concerns. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data

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