The energy-focused private equity firm, Quantum Energy Partners, is teaming up with Linn Energy in search of acquisitions in the oil and gas sector. The firm has agreed to provide $1 billion in equity capital to kick-start the partnership. The deal is another big sign that private equity is committed to the sector despite the sluggish oil prices.
Commenting the Deal
According to the press release, the private equity firm will provide this initial equity while Linn Energy will manage the assets. The company will have holding stakes of 15% to 50%. The partnership will see the two investing in selected future oil and natural gas assets through the AcqCo fund. According to Nasdaq, the fund will invest in assets in the US.
Linn Energy will have the option to earn a promoted interest in the fund, “after certain investor return hurdles are met”. The company will also have the right of first offer if the fund’s assets will be sold in the future. On top of this, the company will be in charge of any administrative costs, with the private equity firm only providing equity for the acquisitions.
Mark E. Ellis, chairman, president and CEO of Linn Energy, said in the statement, “Quantum brings considerable size and scale to source and fund acquisitions, along with the flexibility and responsiveness to be very effective partners.” S. Wil VanLoh Jr. and Dheeraj Verma from Quantum echoed the sentiment. They said the deal will “create a new strategic buyer for these (sizeable or complex) assets, one that has the capital resources and speed of a financial buyer but the operational expertise and workforce of a strategic acquirer”.
Big Private Equity Backing
The oil and gas company was founded in 2003. The private equity firm Quantum Energy together with Michael Linn, the former chief executive of the company, were behind the company and took it public in January 2006.
Furthermore, the most recent deal isn’t the first the company has struck with a private equity firm. Two months ago, the company received funding from GSO Capital Partners. The unit is part of the private equity firm Blackstone Group. That funding was worth $500 million. Blackstone Group’s unit will receive an 85% stake in the drilling profits. Quantum has been investing in the energy sector since it was founded in 1998. The private equity firm has previously focused on the North American oil and gas sector, especially its mid-market assets.
Linn Energy isn’t the only oil and gas company currently struggling with the sluggish oil prices. The Wall Street Journal reported the company has had to cut its payouts to shareholders almost to half of those previously, as it is trying to control capital spending.
It has previously been one of the leading oil and gas companies in creating similar partnerships to this deal and analysts believe the latest deal is yet another sign of private equity interest in the sector. After reporting the deal, Linn Energy saw it share price increase.
According to Motley Fool analysis, the deal is beneficial to Linn Energy. It will remove any funding risk associated with acquisitions and creates more growth for Linn’s investors.