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Investor Wilbur Ross, famous for his big appetite for distressed debt, has spent several hundred million on buying debt in the oil and gas industry, the Wall Street Journal reports, citing sources familiar with the development.
Ross has taken his sweet time entering the oil and gas sector, patiently waiting in the wings while many others were quick to snatch up the debt earlier in the crisis—many of whom were likely surprised and sickened to find out just how long the depressed oil prices have carried on.
These acquisitions will allow Ross’s investment vehicle, W.L. Ross & Co., to take control these distressed oil and gas companies if they are forced by circumstances to file for bankruptcy protection—a move that some may interpret as his confidence that we may finally be at or near the bottom with oil.
The tactic Ross – and other debt investors – is using is buying debt issued by troubled energy companies, and then acquiring either the whole company or part of its assets. The company is already preparing to exchange debt for ownership in Breitburn Energy Partners, which went under and filed for Chapter 11 protection in May. At the same time, it is buying bonds issued by Permian Resources.
The latter company has been the focus of attention for more than one debt investor ever since it ran into trouble. In July, the Wall Street Journal reported that a number of such investors were in talks to acquire the company, which has operations in one of the most attractive parts of the U.S. shale play—the Permian in northern Texas.
Besides W.L. Ross & Co., companies buying Permian Resources debt also included Apollo Global Management, Oaktree Capital Group, and EIG Global Energy Partners.
According to Bloomberg, investment firms have amassed over US$100 billion since mid-2014 to buy energy assets. However, such assets were few initially, as energy companies somehow managed to scrounge a living off their creditors. Now creditors have had enough, and assets for sale have become widely available.
Banks are also selling the debt of distressed energy companies, so we’re likely to soon see a major shift in ownership in the oil and gas sector.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.