Pursuing Capital
for Growth
Capitalizing on Energy and
Capital Evolution
Pursuing Capital
for Growth
Capitalizing on Energy
and Capital Evolution
While 2024 was characterized by some relaxation of the liquidity crunch that stymied capital markets activity in the previous year, access to capital remained somewhat challenging for many oil & gas companies. With interest rates stabilizing and some institutional investors easing back into the hydrocarbon space after a period of retrenchment, we expect 2025 to see a further strengthening of capital availability for, as well as raising and deployment by, the industry from both traditional and alternative sources of funding.
Private Equity
Embracing Strategic Opportunities in the U.S. Energy Landscape
Following a dramatic drop in private equity (PE) oil & gas deal activity from $48.2 billion in 2019 to $17.3 billion in 2023, the U.S. private equity market is experiencing a resurgence of interest in energy, presenting a compelling opportunity for both financial sponsors and energy companies seeking growth capital. The trend, driven by consolidation and strategic divestitures among majors, has spurred an uptick in institutional fundraising for energy-focused private equity funds, as investors recognize the potential for attractive returns in a sector poised for growth.
While 2024 was characterized by some relaxation of the liquidity crunch that stymied capital markets activity in the previous year, access to capital remained somewhat challenging for many oil & gas companies. With interest rates stabilizing and some institutional investors easing back into the hydrocarbon space after a period of retrenchment, we expect 2025 to see a further strengthening of capital availability for, as well as raising and deployment by, the industry from both traditional and alternative sources of funding.
Private Equity
Embracing Strategic Opportunities in the U.S. Energy Landscape
Following a dramatic drop in private equity (PE) oil & gas deal activity from $48.2 billion in 2019 to $17.3 billion in 2023, the U.S. private equity market is experiencing a resurgence of interest in energy, presenting a compelling opportunity for both financial sponsors and energy companies seeking growth capital. The trend, driven by consolidation and strategic divestitures among majors, has spurred an uptick in institutional fundraising for energy-focused private equity funds, as investors recognize the potential for attractive returns in a sector poised for growth.
U.S. PE Market
The universe of investors putting money into oil & gas funds has undoubtedly shrunk from the previous “boom” period, with a number of pension funds and university endowments pulling out completely. However, we see some Silicon Valley foundations, tech giants and family offices expressing more interest in hydrocarbons and supporting co-investment opportunities, and a lot of money continues to flow into the industry from the Middle East. Still, the fundraising climate continues to drive a consolidation of private equity sponsors such that the largest funds are increasingly snapping up the majority of investment capital. For example, EnCap Investments successfully closed its twelfth fund with $6.4 billion of commitments in October 2024, exceeding its initial target and hard cap, in an announcement that was swiftly followed by Quantum Capital Group’s obtaining capital commitments of more than $10 billion for its diversified energy investment platform.
European PE Market
While deal volume is down, there have been a number of substantial deals closed in Europe through 2024, and we see strategics moving back in to compete with private equity for targets. Both Shell and BP have slowed down their divestment programs of late, creating a more competitive deal climate, though it remains challenging for sponsors to price oil & gas assets in Europe in a regulatory environment where it is hard to know how the energy levies impacting those assets will play out.
Deployment Dynamics: While we are not seeing a great deal of sponsor appetite for new management team funding, sponsors appear to be bullish on backing established teams with strong and proven track records.
Consolidation and Divestitures: There remains a steady flow of transactional opportunities for private equity sponsors, with a lot of midstream activity in the Permian Basin and elsewhere. Large energy companies are increasingly divesting noncore assets, generating a robust pipeline of investment opportunities for private equity firms.
Middle Market Strength: The middle market remains particularly attractive for private equity investment, as companies in this segment are often less reliant on debt financing and can present compelling growth prospects.
Focus on Cash Flow Generation: In today’s market, private equity investors are prioritizing companies with strong free cash flow generation and a clear path to profitability, seeking investments that can deliver returns without relying solely on exit events.
U.S. PE Market
The universe of investors putting money into oil & gas funds has undoubtedly shrunk from the previous “boom” period, with a number of pension funds and university endowments pulling out completely. However, we see some Silicon Valley foundations, tech giants and family offices expressing more interest in hydrocarbons and supporting co-investment opportunities, and a lot of money continues to flow into the industry from the Middle East. Still, the fundraising climate continues to drive a consolidation of private equity sponsors such that the largest funds are increasingly snapping up the majority of investment capital. For example, EnCap Investments successfully closed its twelfth fund with $6.4 billion of commitments in October 2024, exceeding its initial target and hard cap, in an announcement that was swiftly followed by Quantum Capital Group’s obtaining capital commitments of more than $10 billion for its diversified energy investment platform.
European PE Market
While deal volume is down, there have been a number of substantial deals closed in Europe through 2024, and we see strategics moving back in to compete with private equity for targets. Both Shell and BP have slowed down their divestment programs of late, creating a more competitive deal climate, though it remains challenging for sponsors to price oil & gas assets in Europe in a regulatory environment where it is hard to know how the energy levies impacting those assets will play out.
Deployment Dynamics: While we are not seeing a great deal of sponsor appetite for new management team funding, sponsors appear to be bullish on backing established teams with strong and proven track records.
Consolidation and Divestitures: There remains a steady flow of transactional opportunities for private equity sponsors, with a lot of midstream activity in the Permian Basin and elsewhere. Large energy companies are increasingly divesting noncore assets, generating a robust pipeline of investment opportunities for private equity firms.
Middle Market Strength: The middle market remains particularly attractive for private equity investment, as companies in this segment are often less reliant on debt financing and can present compelling growth prospects.
Focus on Cash Flow Generation: In today’s market, private equity investors are prioritizing companies with strong free cash flow generation and a clear path to profitability, seeking investments that can deliver returns without relying solely on exit events.
Private Credit
Filling the Void in Traditional Energy Finance
Private credit has emerged as an important force in the energy finance landscape, particularly for companies operating in the traditional oil & gas sector. The pullback of traditional lenders, coupled with the energy sector’s inherent capital intensity, has created a significant demand for alternative financing solutions.
Private credit funds have emerged as a reliable source of capital, providing companies with the financial resources necessary to pursue growth initiatives, refinance existing debt and navigate market volatility. As traditional banks continue to retreat from reserve-based, fossil fuel lending, private credit has been increasingly moving into and increasing its market share in the specialty finance space (including the oil & gas sector) and is expected to further solidify its position as a key player in the energy finance landscape.
Rapid Growth
With bank lenders retrenching from funding the oil & gas market as a result of climate and other regulatory concerns, private credit fund managers have increased their exposure to the industry in recent years. Data from Preqin reveals a dramatic increase in private credit deals in the oil & gas industry, with deal value soaring to over $9 billion in the two-year period ending December 31, 2023, up from a meager $450 million in the prior two-year period. The retreat by traditional lenders has been particularly pronounced in Europe, where the pressure on banks to move out of hydrocarbon-based lending has been strongest and compounded by regulatory pressure.
Higher Costs, Increased Flexibility
While private credit provides access to much-needed capital, it sometimes comes at a higher cost than traditional bank financing. However, private credit funds often offer faster execution and greater flexibility in terms of deal structuring and covenants, making them an attractive option for companies seeking customized financing solutions. In addition, given the amount of new private credit funds that have launched, and the massive amounts of capital raised by private credit funds over the past several years, check sizes have increased to levels that, in many cases, exceed what traditional banks have been able to provide.
Strategic Opportunities
Private credit investors are actively seeking opportunities to provide acquisition financing, supporting private equity-backed acquisitions of oil & gas assets from larger producers, and have also become increasingly interested in providing capital in the asset-based and project-based lending spaces.
Private Credit
Filling the Void in Traditional Energy Finance
Private credit has emerged as an important force in the energy finance landscape, particularly for companies operating in the traditional oil & gas sector. The pullback of traditional lenders, coupled with the energy sector’s inherent capital intensity, has created a significant demand for alternative financing solutions.
Private credit funds have emerged as a reliable source of capital, providing companies with the financial resources necessary to pursue growth initiatives, refinance existing debt and navigate market volatility. As traditional banks continue to retreat from reserve-based, fossil fuel lending, private credit has been increasingly moving into and increasing its market share in the specialty finance space (including the oil & gas sector) and is expected to further solidify its position as a key player in the energy finance landscape.
Rapid Growth
With bank lenders retrenching from funding the oil & gas market as a result of climate and other regulatory concerns, private credit fund managers have increased their exposure to the industry in recent years. Data from Preqin reveals a dramatic increase in private credit deals in the oil & gas industry, with deal value soaring to over $9 billion in the two-year period ending December 31, 2023, up from a meager $450 million in the prior two-year period. The retreat by traditional lenders has been particularly pronounced in Europe, where the pressure on banks to move out of hydrocarbon-based lending has been strongest and compounded by regulatory pressure.
Higher Costs, Increased Flexibility
While private credit provides access to much-needed capital, it sometimes comes at a higher cost than traditional bank financing. However, private credit funds often offer faster execution and greater flexibility in terms of deal structuring and covenants, making them an attractive option for companies seeking customized financing solutions. In addition, given the amount of new private credit funds that have launched, and the massive amounts of capital raised by private credit funds over the past several years, check sizes have increased to levels that, in many cases, exceed what traditional banks have been able to provide.
Strategic Opportunities
Private credit investors are actively seeking opportunities to provide acquisition financing, supporting private equity-backed acquisitions of oil & gas assets from larger producers, and have also become increasingly interested in providing capital in the asset-based and project-based lending spaces.
Ryan Dunfield, CEO of SAF Group, one of Canada’s largest alternative lenders in the energy sector, predicts that the shift from banks to private credit will continue to accelerate:
Rob Horn, head of the sustainable resources group at Blackstone, highlights the crucial role of private capital in driving the energy transition:
![Private capital is essential to fund this transformation in our economy...Increasingly, we are seeing larger companies, including investment grade companies, turn to private markets for [transition] funding.2](./assets/slaZ8i0dvQ/33-akin_oilandgas_pursuing-capital-for-growth-900x217.png)
Ryan Dunfield, CEO of SAF Group, one of Canada’s largest alternative lenders in the energy sector, predicts that the shift from banks to private credit will continue to accelerate:
Rob Horn, head of the sustainable resources group at Blackstone, highlights the crucial role of private capital in driving the energy transition:
![Private capital is essential to fund this transformation in our economy...Increasingly, we are seeing larger companies, including investment grade companies, turn to private markets for [transition] funding.2](./assets/KsQLAvddi7/21-akin_oilandgas_pursuing-capital-for-growth_mobile-900x379.jpg)
Hybrid Capital
Balancing Risk and Reward
Hybrid capital instruments—such as preferred equity, convertible debt and other bespoke capital solutions—offer a compelling solution for energy companies seeking to bridge the gap between pure debt and equity financing. Even borrowers with strong underlying balance sheets have been squeezed by higher borrower costs and impending debt maturities, fueling demand for solutions that avoid excessive dilution or unsustainable leverage.
The hybrid approach allows companies to secure capital without incurring excessive debt or diluting existing equity holders. Hybrids remain a powerful tool for oil & gas companies seeking funding—particularly in a volatile market environment—striking a balance between risk and reward, making it an increasingly popular option in the energy sector.
- Preferred Equity’s Appeal: Preferred equity sits between common equity and debt in the capital structure, providing investors with a higher claim on assets than common equity but with lower risk than traditional debt.
- Flexible Applications: Hybrid capital can be deployed for a variety of purposes, including funding growth initiatives, deleveraging balance sheets, and closing distributions to paid-in capital (DPI) ratio gaps for liquidity-hungry LPs. In particular, in the new energy ecosystem, hybrid capital has been deployed to provide financial resources to companies investing in new technologies, expanding existing operations and capitalizing on emerging market opportunities.
- Favorable Pricing Environment: Despite market volatility, pricing for hybrid capital solutions remains attractive for both companies and investors.
Hybrid Capital
Balancing Risk and Reward
Hybrid capital instruments—such as preferred equity, convertible debt and other bespoke capital solutions—offer a compelling solution for energy companies seeking to bridge the gap between pure debt and equity financing. Even borrowers with strong underlying balance sheets have been squeezed by higher borrower costs and impending debt maturities, fueling demand for solutions that avoid excessive dilution or unsustainable leverage.
The hybrid approach allows companies to secure capital without incurring excessive debt or diluting existing equity holders. Hybrids remain a powerful tool for oil & gas companies seeking funding—particularly in a volatile market environment—striking a balance between risk and reward, making it an increasingly popular option in the energy sector.
- Preferred Equity’s Appeal: Preferred equity sits between common equity and debt in the capital structure, providing investors with a higher claim on assets than common equity but with lower risk than traditional debt.
- Flexible Applications: Hybrid capital can be deployed for a variety of purposes, including funding growth initiatives, deleveraging balance sheets, and closing distributions to paid-in capital (DPI) ratio gaps for liquidity-hungry LPs. In particular, in the new energy ecosystem, hybrid capital has been deployed to provide financial resources to companies investing in new technologies, expanding existing operations and capitalizing on emerging market opportunities.
- Favorable Pricing Environment: Despite market volatility, pricing for hybrid capital solutions remains attractive for both companies and investors.
Family Offices
Emerging as Key Players
As private equity funds focus on restarting the engines, family offices have also stepped in to fill the funding gap and have emerged as key players, bringing much-needed capital, flexibility and expertise.
Investment Horizon
Oftentimes, family offices are not saddled with set investment timelines or exit strategies, and, instead, have the flexibility to invest with a longer-term perspective—many can hold assets indefinitely. This aligns well with the energy industry’s long development cycles and capital-intensive nature. Family offices can ride out commodity price cycles and focus on stable cash flows and long-term value creation, rather than feeling pressure from limited partners to exit investments at a sub-optimal time.
Speed and Agility
Many family offices are smaller and more nimble than large institutional investors, allowing for faster decision-making and greater agility in pursuing opportunities. This streamlined decision-making process is helpful in the current market, where speed and flexibility are crucial for winning the best opportunities.
Family Offices
Emerging as Key Players
As private equity funds focus on restarting the engines, family offices have also stepped in to fill the funding gap and have emerged as key players, bringing much-needed capital, flexibility and expertise.
Investment Horizon
Oftentimes, family offices are not saddled with set investment timelines or exit strategies, and, instead, have the flexibility to invest with a longer-term perspective—many can hold assets indefinitely. This aligns well with the energy industry’s long development cycles and capital-intensive nature. Family offices can ride out commodity price cycles and focus on stable cash flows and long-term value creation, rather than feeling pressure from limited partners to exit investments at a sub-optimal time.
Speed and Agility
Many family offices are smaller and more nimble than large institutional investors, allowing for faster decision-making and greater agility in pursuing opportunities. This streamlined decision-making process is helpful in the current market, where speed and flexibility are crucial for winning the best opportunities.
Investment Structure
Family offices are not limited to traditional fund structures and can invest at various levels, including direct investments, co-investments and partnerships. This flexibility allows them to tailor their investment approach to specific opportunities and partner with management teams in a way that best suits their needs. Family offices may invest in corporate equity, at the asset level, or even partner with other funds and firms on deals.
Customization and Control
Family offices can customize their investment strategies to align with their values and long-term goals, which are often multigenerational. This personalized approach sets them apart from institutional investors with more standardized investment mandates.
Broad Mandate
While the primary focus for many family offices remains on traditional energy sources, there is growing interest in new energy technologies. This is driven by a combination of factors, including the desire to diversify portfolios and a growing awareness of the importance of sustainability. Family offices can leverage their expertise in traditional energy to identify and invest in promising new energy technologies, such as carbon capture, hydrogen and advanced geothermal.
Investment Structure
Family offices are not limited to traditional fund structures and can invest at various levels, including direct investments, co-investments and partnerships. This flexibility allows them to tailor their investment approach to specific opportunities and partner with management teams in a way that best suits their needs. Family offices may invest in corporate equity, at the asset level, or even partner with other funds and firms on deals.
Customization and Control
Family offices can customize their investment strategies to align with their values and long-term goals, which are often multigenerational. This personalized approach sets them apart from institutional investors with more standardized investment mandates.
Broad Mandate
While the primary focus for many family offices remains on traditional energy sources, there is growing interest in new energy technologies. This is driven by a combination of factors, including the desire to diversify portfolios and a growing awareness of the importance of sustainability. Family offices can leverage their expertise in traditional energy to identify and invest in promising new energy technologies, such as carbon capture, hydrogen and advanced geothermal.
Traditional Lending and Debt Capital Markets
Navigating a Changing Landscape
While private credit and hybrid capital have gained significant traction, traditional lending and debt capital markets remain essential for energy companies with strong credit profiles and a demonstrated commitment to profitability.
Investment Grade Debt Availability
Investment grade debt remains available for companies with strong credit ratings. This type of debt capital is being used primarily for refinancing existing debt and, to some extent, for financing acquisitions.
High-Yield Challenges
Access to capital has become more limited and expensive for high-yield issuers in the energy space, reflecting investor caution and a greater emphasis on credit quality and strong profitability.
Challenges and Opportunities Ahead
Over $250 billion of investment grade and speculative grade debt maturities are expected to come due in the oil & gas sector globally over the next three years, according to S&P Global. That will present both refinancing challenges and potential opportunities for creative refinancings.
Traditional Lending and Debt Capital Markets
Navigating a Changing Landscape
While private credit and hybrid capital have gained significant traction, traditional lending and debt capital markets remain essential for energy companies with strong credit profiles and a demonstrated commitment to profitability.
Investment Grade Debt Availability
Investment grade debt remains available for companies with strong credit ratings. This type of debt capital is being used primarily for refinancing existing debt and, to some extent, for financing acquisitions.
High-Yield Challenges
Access to capital has become more limited and expensive for high-yield issuers in the energy space, reflecting investor caution and a greater emphasis on credit quality and strong profitability.
Challenges and Opportunities Ahead
Over $250 billion of investment grade and speculative grade debt maturities are expected to come due in the oil & gas sector globally over the next three years, according to S&P Global. That will present both refinancing challenges and potential opportunities for creative refinancings.
Equity Capital Markets
A Tale of Two Markets
The equity capital markets present a divergent landscape for energy companies, with the U.S. and Europe exhibiting starkly different investor appetites.
U.S. Receptivity and Activity
As has been the theme for the past five years, the U.S. equity capital markets remain somewhat receptive to energy companies that demonstrate strong financial performance, with a clear focus on profitability and cash flow generation. There was more oil & gas capital markets activity last year than has been the case in the years post-pandemic, but deal volumes remain steady and predictions of a meaningful upswing in debt and equity offerings have so far failed to materialize. The most high-profile U.S. energy IPOs of 2024 included Denver-based natural gas producer BKV’s $270 million IPO in September and Five Point Energy-backed LandBridge’s $270.9 million IPO in June, both on the New York Stock Exchange. Appalachian-focused Infinity Natural Resources and oil field services firm HMH also filed to go public in the last quarter of 2024.
European Challenges
In contrast, the European equity capital markets remain largely closed for significant IPOs of oil & gas companies, reflecting heightened ESG concerns and stricter regulatory pressures.
Looking Forward
Geopolitical factors tied to the change of U.S. political regime and ongoing tensions in Europe and the Middle East will have some bearing on capital markets activity in 2025, though we expect the industry headwinds to lessen as investors appreciate the opportunities presented by energy security as a pressing concern.
Equity Capital Markets
A Tale of Two Markets
The equity capital markets present a divergent landscape for energy companies, with the U.S. and Europe exhibiting starkly different investor appetites.
U.S. Receptivity and Activity
As has been the theme for the past five years, the U.S. equity capital markets remain somewhat receptive to energy companies that demonstrate strong financial performance, with a clear focus on profitability and cash flow generation. There was more oil & gas capital markets activity last year than has been the case in the years post-pandemic, but deal volumes remain steady and predictions of a meaningful upswing in debt and equity offerings have so far failed to materialize. The most high-profile U.S. energy IPOs of 2024 included Denver-based natural gas producer BKV’s $270 million IPO in September and Five Point Energy-backed LandBridge’s $270.9 million IPO in June, both on the New York Stock Exchange. Appalachian-focused Infinity Natural Resources and oil field services firm HMH also filed to go public in the last quarter of 2024.
European Challenges
In contrast, the European equity capital markets remain largely closed for significant IPOs of oil & gas companies, reflecting heightened ESG concerns and stricter regulatory pressures.
Looking Forward
Geopolitical factors tied to the change of U.S. political regime and ongoing tensions in Europe and the Middle East will have some bearing on capital markets activity in 2025, though we expect the industry headwinds to lessen as investors appreciate the opportunities presented by energy security as a pressing concern.
Conclusion
Embracing a Future of Energy and Capital Abundance
As we move into 2025 with a new president in the White House, Republican majority in both the U.S. House of Representatives and Senate, and ongoing geopolitical conflict in Ukraine, the Middle East and elsewhere, we expect capital to continue to become more available to the oil & gas industry. With some strengthening of investor appetite for hydrocarbons being motivated by energy security concerns, and the Trump administration prioritizing industry growth, we expect the capital markets to be more active.
In private markets, the opportunity for private credit funds to escalate their lending into the industry and for private equity to deploy oil & gas funds as strategics shed assets should herald a busy year. With elevated interest rates and election uncertainty key features of the past 12 months, a more certain forward trajectory should further strengthen the availability of funding for growth.
1 See https://www.investmentnews.com/industry-news/private-credit-is-filling-fossil-fuels-void-left-by-banks/251422
2 See https://www.newprivatemarkets.com/blackstone-closes-7-1bn-credit-fund-to-balance-transition-and-energy-access/
3 See https://finance.yahoo.com/news/investing-generationally-family-office-view-044500486.html
Conclusion
Embracing a Future of Energy and Capital Abundance
As we move into 2025 with a new president in the White House, Republican majority in both the U.S. House of Representatives and Senate, and ongoing geopolitical conflict in Ukraine, the Middle East and elsewhere, we expect capital to continue to become more available to the oil & gas industry. With some strengthening of investor appetite for hydrocarbons being motivated by energy security concerns, and the Trump administration prioritizing industry growth, we expect the capital markets to be more active.
In private markets, the opportunity for private credit funds to escalate their lending into the industry and for private equity to deploy oil & gas funds as strategics shed assets should herald a busy year. With elevated interest rates and election uncertainty key features of the past 12 months, a more certain forward trajectory should further strengthen the availability of funding for growth.
1 See https://www.investmentnews.com/industry-news/private-credit-is-filling-fossil-fuels-void-left-by-banks/251422
2 See https://www.newprivatemarkets.com/blackstone-closes-7-1bn-credit-fund-to-balance-transition-and-energy-access/
3 See https://finance.yahoo.com/news/investing-generationally-family-office-view-044500486.html
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