By Kevin Crowley
Private equity firms poured money into the shale industry after the oil-price crash that began in 2014. Many had the intention of buying up leases, drilling a few wells and then flipping them to a larger buyer for profit. That model has dried up in the past two years as investors soured on the sector and punished companies for making overpriced acquisitions.
“There’s no capital to go buy assets. Sellers of assets don’t want to sell their companies at these low valuations,” Kafka said.
Despite the difficulties, WPX Energy Inc. agreed to buy EnCap-backed Felix Energy LLC for $2.5 billion in December. Key to the sale was developing Felix’s Permian assets to such an extent that they had substantial cash flow, Kafka said. That’s likely to be a model for future disposals.
EnCap is aiming to be a “low-cost, efficient developer of these highly economic areas” which will help position its assets as “attractive potential acquisition candidates,” Kafka said.