First Reserve is the largest global private equity investment firm exclusively focused on energy. The company opened presentations at the Energy, Oil & Gas Investor Summit this morning in Sydney with some perspective on the growing interest of private equity in the energy space as oil prices tumble.
The group's managing director for Asia Jamie Paton told delegates that as big energy companies with challenged balance sheets spin off assets, opportunities could be seized in providing liquidity to low-risk players and their partners.
"Oil volatility is not new and the industry is used to these peaks and troughs," he said.
"It is not great for the many of you who are investors in here, but the big oil companies have been through this before and the big investors have been through this before. The key in our view is liquidity."
Paton continued by describing the nature of the oil and gas sector as a long-term play with some $US37 trillion ($A48.6 trillion) of investment needed over the next 20 years and sturdy demand outlooks based on developing world growth trends.
He reminded the assembly at the Sofitel Sydney Wentworth Hotel that the US shale story had its roots in an often-dismissed class of innovative wildcatters with a technological bent.
For Australia to take advantage of its access to Asia-Pacific energy markets, investors in the country will have to embrace relationships with similar innovators who are seeking to reach Asian customers in more cheap and efficient ways.
"Most commentators are saying production will start coming down toward the end of the year because the oil price is just not conducive to more drilling," Paton said.
"But really we think that midstream and downstream is still a very interesting place to invest, [with] huge capex required both in the US and globally. We're looking at companies that either provide equipment for that, provide storage or can take advantage of cheaper areas.
"If you're in equipment services, that is a tough place right now. But if you can find businesses that have got that technical edge and are able to find, produce and develop in a far more cost-effective way than everybody else, that's a really interesting play right now."
Acknowledging expectations for an increase in mergers, acquisitions and corporate activity amid struggling oil prices, Paton advised following a tech-savvy partnership strategy with a preference for companies possessing the capital and experience to survive the current industry turmoil.
"I would encourage you if you're looking at companies as investors, find out who else their partnering with, because the bigger and better the partner, hopefully the more has been shared to their advantage," he said.
"It's something you should look at closely when you're looking at particular businesses."
