Since 2017 the US has been the top oil-producing country in the world. Yet European commercial banks, US private equity funds and even some hedge funds have exited the oil and gas sector due to environmental, social, and governance concerns, instead of purely economic reasons.
Natural gas prices are soft compared to their levels during most of the last decade. According to the US Energy Information Administration, Henry Hub natural gas spot prices averaged $3.32 (£2.63) per million BTUs (British thermal unit) between December 2013 and December 2023.
Prices were $2.52 per million BTUs in December 2023.
Oil prices are healthy but well below their levels seen during much of the past two years. According to the Federal Reserve Bank of St Louis, WTI crude spot prices averaged $85.63 per barrel between December 2021 and December 2023. Prices were $71.90 in December 2023.
So why are UK-based family offices exhibiting greater appetite for the space?
Many UK family offices that have been active for years in both oil and gas globally, and in the US specifically, are now showing more interest in the space.
In addition, some newer UK family offices whose wealth does not originate from oil and gas, but from sectors such as real estate, more recently have expanded their investment thesis to include US energy.
How UK family offices evaluate potential investments in oil and gas
From the point of view of UK family offices, hydrocarbons will remain essential to global energy needs for the foreseeable future despite growing ESG concerns, as traditional sources of capital leave the oil and gas sector.
Therefore family offices may have opportunities to invest in US oil and gas firms at attractive valuations.
It is worth noting that most hedge funds are predominantly fundamental and opportunistic investors, much like family offices.
Some hedge funds have noted that oil and gas is an under-capitalised sector, and that now may be a good time to invest.
Significant oil and gas merger and acquisition activity transpired in 2023.
This includes major deals such as Exxon Mobil agreeing to acquire shale rival Pioneer Natural Resources for $59.5bn in an all-stock transaction, and Chevron agreeing to acquire Hess in an all-stock transaction valued at $53bn.
Entering US onshore oil and gas production for the first time, UK-based INEOS Energy also acquired from Chesapeake Energy approximately 172,000 net acres and 2,300 wells of its Eagle Ford asset in Texas for $1.4bn.
Deal types
Potential opportunities exist for family offices of different sizes.
It is not unusual for family offices to invest anywhere from $25mn to $200mn per transaction, with total allocations to US oil and gas in some cases of more than $500mn.
Besides the US, investments also have come to market across Europe, for example in the North Sea and in Germany.
Similar to US family offices, UK family offices typically have longer holding periods than private equity firms.
Although they tend to underwrite around five-year exits mainly to generate returns in their models, in practice many UK family offices will hold promising investments for considerably longer than that through various economic and market cycles.
