Seeking Alpha in the Oilfield: How Private Equity is adapting to the seismic changes in oil & gas

During these unprecedented times in the Oil industry, the most progressive operators are adapting to macroeconomic headwinds and finding ways to reduce costs creatively and effectively through the implementation of technology throughout their operations. By way of logic, the same fundamentals should apply to energy focused Private Equity (“PE”) groups as they aggressively look for ways to generate ROI for the Limited Partners (“LPs”) in their portfolios.

Unprecedented Industry Headwinds

A global pandemic, oil prices in backwardation, and geopolitically driven oversupply of oil is driving what appears to be a record low year for investment activity in the Oil Industry. Any one of the above would be enough to cause trepidation to the unencumbered to investing in the industry, combine all three and it is easy to see why this industry is not for the faint of heart.

For the savvy energy focused PE groups that have portfolio companies exposed to these factors, this is not necessarily a sign of doom & gloom, but rather the culmination of these events present unique opportunities for them to tackle these hurdles and navigate them skillfully to grow EBITDA, continue to scale, and position their platforms for eventual exits in a time of overarching global uncertainty.

SaaS / Cloud based Software May be the Navigating Beacon

While revenue expansion is going to be challenging for companies in this environment, PE can still manage their platform’s EBITDA through non-headcount cost reductions. Through SaaS technology, the next generation of workflows create an efficient streamline of data between the investors, operators, and portfolio companies. With this evolution in cloud-based software capturing and storing critical data, connecting missing pieces when analyzing data within portfolio companies has brought tremendous value to operations previously considered ‘optimized’.

With technology emerging, it is now easier than ever for PE’s to see into individual portfolios for a near instant digital view into the daily operations, production reporting, and P&L data being collected in the field. This has an immediate impact on cost savings and auditability, ultimately impacting EBITDA and positioning the fund for strong ROI.

Let Transparent Data Steer the Operational Ship

Data quality in the field has always carried with it a fog of uncertainty and a lack of cross functional transparency. In fair sailing, at $100 / bbl. oil, this is not as relevant, but as market dynamics shift an already volatile market into territory not seen in history, the more transparent the data, the leaner and more efficient companies can operate.

Technology forward PE groups are evaluating disruptive software to help manage their portfolio and providing tools for their operators to utilize with real-time actionable data, enhancing daily operations and reducing overhead cost. This data can then be entrenched into the toolboxes already in use to rank investments. Managing activity for quality M&A transactions and de-risking potential funding for new operators in the industry can separate the PE that crystallizes value, from those lacking data driven insights forced to sell assets at distressed prices.

Successful PE groups have the unique ability to add value, and using real-time data collected between each portfolio company to provide full transparency into investments and to help navigate these tumultuous waters will surely separate the alpha from the beta, and so on.

Kayla Lane
Sales Executive
ENGAGE