Since last year, the price of West Texas Intermediate (WTI) Crude Oil has approximately halved - experiencing considerable volatility on its way down. This swift decline has led to a negative outlook for the oil and gas industry, as energy companies have been forced to curtail their capital expenditures to preserve cash flow. The deteriorating health of these companies has put pressure on both their ability to access the capital markets and the performance of their debt and equity securities, causing uncertainty for investors.
Key Takeaways: The current level of crude prices presents challenges for debt and equity investors, while opportunity abounds for private equity managers with investable assets, who are able to acquire energy assets at attractive valuations but are not penalized for short-term valuation changes in their own portfolios.
Historically funds that invested during years that concluded a meaningful drop in oil prices (1998, 2002 and 2009), have tended to generate higher returns than prior vintage year funds raised during periods of rising commodity prices. Given this dynamic, all is not lost with the current energy market volatility. Instead, it may be an excellent time to opportunistically buy private equity energy assets.
The material provided here is for informational use only. The views expressed are those of the author, and do not necessarily reflect the views of Penn Mutual Asset Management.
This material is for informational use only. The views expressed are those of the author, and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.
Opinions and statements of financial market trends that are based on current market conditions constitute judgment of the author and are subject to change without notice. The information and opinions contained in this material are derived from sources deemed to be reliable but should not be assumed to be accurate or complete. Statements that reflect projections or expectations of future financial or economic performance of the markets may be considered forward-looking statements. Actual results may differ significantly. Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate.
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