Private Equity Firms Preparing for a Fight Over Shell’s Scraps


April 13, 2015

Shell’s announcement last week to acquire the British BG Group has inspired private equity firms to compete for the leftover assets. Newspapers reported on Sunday that the acquisition might leave behind $30 billion worth of assets and most big private equity firms are trying to get their hands on these assets.


Shell’s Announcement
Shell’s deal to buy BG Group is thought to be worth $70 billion and it would be the largest ever merger between two UK-based companies. The Telegraph reported on Saturday that the deal could lead to a wave of consolidation in the oil and gas sector in the coming months. According to Shell’s chief executive, Ben van Beurden, the new company would be selling of assets in the next three years worth of $30 billion. The aim would be to get rid off around $10 billion worth of assets each year starting from 2016.


There may even be smaller asset sales this year, although according to van Beurden the situation now reflects “weak market conditions for divestments”. Most analysts believe the company is looking to shed off its North Sea assets.


Private Equity Interest
According to the reports, big private equity firms are gearing up to fight over these assets. It is thought that Warburg Pincus and Blackstone are both looking closely into buying Shell’s leftover assets. But on top of this, Carlyle, Riverstone, Apollo and KKR have all investment in similar assets in the past. It is very likely that if Shell puts the assets on sale, these private equity firms will also consider launching bids.


PE firms managed to raise $49 billion of capital in 2014 for energy-focused funds. As commodity prices have surged, there have been plenty of opportunities to splash this equity. Warburg Pincus, for instance, raised $4 billion with its latest energy-focused fund. PE firm managers have remained bullish on energy markets, with Blackstone chief executive, Stephen Schwarzman, saying earlier that the market presents a number of ‘wonderful’ opportunities for the firm.


Deal Won’t Take Place Until 2016
PE firms will have a long time to consider their options, as it is understood the Shell deal won’t be finalised until early next year. The two companies, Shell and BG Group, have overlapping presence in nearly 15 countries, which suggests there is plenty of room for selling assets. But regions like the North Sea might prove to be difficult, as most energy companies operating in the region are expected to sell some assets there. For private equity deals, this might mean even tougher competition over the most lucrative of assets.


The Telegraph cited, Pascal Menges, manager of the Lombard Odier Global Energy Fun, who said, “The deal comes at a hefty price and management will have their work cut out to execute the deal and generate synergies and assets sales. The risk of indigestion is not small.”  The energy sector is set to be a busy sector in terms of private equity deals. It remains to be seen whether private equity firms end up spending record amounts in the coming year.

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