Financing options 'awash for industry'

Money talks: Michael O'Dwyer on financing for the oil industry at ONS

Oil and gas players have “more options than ever before in how they finance themselves”, as global spending in the energy industry is set to balloon.

Private equity funding will continue its importance to the industry, while sovereign wealth and pension funds are also core sources of financing, Michael O’Dwyer, regional head of natural resources at Morgan Stanley, said at ONS on Wednesday.

“We expect to see continued growth in the oil & gas expenditure, with investment of around $1 trillion per year in real terms over the next 20 years, with total spend estimated at $23 trillion,” O’Dwyer said.

“Ten years from now, we will likely be spending $1.7 trillion per year across all areas of the energy map,” encompassing more than just the oil & gas sector.

The emergence of new forms of finance – such as venture capital and crowd funding – has increased the options for oil players.

“With the help of innovation, they can tap pools of capital that would otherwise not be available to them, and finance themselves more efficiently.”

The global economic downturn in 2008 led to a growth in capital market funding, with a recent drive for bond markets from oil players, O’Dwyer said.

“Private equity and venture capital have been, and will continue to be an important source of funding for the sector.”

Meanwhile, sovereign wealth funds last year controlled assets totaling $5.7 trillion, with funds in the Middle East and Asia unsurprisingly leading the way.

“The energy sector is one that is well understood by these groups, and we see these groups becoming increasing creative in how they look to deploy capital,” O’Dwyer said of sovereign wealth funds.

“They look for high-quality, long-term investments – not necessarily with the highest risk and the highest return – and will continue to grow as an important source of capital for the sector.”

Pension funds are also significant players in the industry, the former Eni engineer adding: “These groups are sitting on trillions of dollars of capital and they need to earn a return in order to fund their liabilities.

“Their risk tolerance is very low but so are their return requirements, and their desire to invest in long-lived, low-risk assets make them excellent partners for energy companies looking to de-capitalise their low-return assets.”

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