SINGAPORE Flush with cash, private equity-backed firms and former oil industry executives are eyeing energy assets in Southeast Asia as prolonged lower crude prices drive oil majors hungry for cash to divest or seek additional funds.
The firms are banking on a rapid rise in economic growth in Southeast Asia - a region ripe with cheaper and smaller oil and gas fields which are nearing production - to boost oil demand and in turn enable them to resell the assets within a few years at a profit.
Global investment firms such as KKR and Co and The Carlyle Group are backing Southeast Asia-focused oil and gas companies while at least half a dozen senior oil and gas professionals have left illustrious careers with oil majors to join funds or set up their own companies, industry sources told Reuters.
"There is definitely a trend of more private equity firms coming in and looking for good valuations and good opportunities," said Michael Arruda, a partner in Baker Botts law firm in Hong Kong.
"(They) are coming in particular as some of the oil majors are going through downsizing and selloffs and they (private equity firms) are looking for the right sized pieces to pick up."
Investors are zeroing in on upstream assets in Southeast Asia where economies are flexible and smaller, "digestible" assets are becoming available, said Arruda.
While private equity firms have tried Southeast Asian energy previously, at least one of them had to exit after being hit by the plummet in oil prices last year.
But lower valuations of oil and gas assets are prompting renewed interest in the sector, said Philip Jeyaretnam, chief executive of law firm Dentons Rodyk.
In an Ernst and Young survey earlier this year of 100 managing directors and partners from private equity firms, all of them expected to see more involvement in the Asia-Pacific oil and gas sector, up from 79 percent in a 2013 survey.
While long-term fundamentals for oil demand remain robust, low oil prices are putting pressure on the sector, resulting in operational challenges and increasing debt, said Sanjeev Gupta, head of Ernst and Young's Asia-Pacific Oil and Gas division.
Industry tracker Preqin says about 17 percent of private equity firms are investing in oil and gas globally and about two-thirds of them have a preference for Asia.
WHO'S GETTING INVOLVED
While actual oil and gas investments by private equity in Southeast Asia have yet to materialize in significant numbers, more firms are indicating their increased interest and attending deal-making meetings, oil and gas lawyers told Reuters.
So far, Mandala Energy, a southeast Asia focused oil and gas company backed by KKR is one of few to have invested.
It will invest almost $180 million for a 35 percent stake in the Lemang production-sharing contract from Ramba Energy's subsidiary PT Hexindo Gemilang Jaya in Indonesia last year, according to Mandala's website.
KKR declined to comment on its oil and gas investments, while Carlyle Group did not respond to Reuters' request for comment.
Private equity-backed firms typically budget about $100 to $200 million for each investment and are looking for assets either in production or close to production they can exit in 5-10 years, the oil and gas lawyers told Reuters.
Bill Lafferrandre, who recently retired from ConocoPhillips after 31 years to co-found exploration and production firm Sea Dragon Resources, said it was a "great time" to acquire assets.
"The quality of assets that are in the market are improving...and buyer and seller expectations are coming more into balance now as prices have stayed lower for quite a bit longer," he said.
Lafferrandre is currently looking to acquire upstream oil and gas assets in countries such as Indonesia, Vietnam and Thailand, using funds from private equity and other investors.
He estimates there are more than 50 attractive oil and gas assets in the appraisal to development stages, and sellers' expectations of asset prices have come down by 25 to 30 percent in the past year.
Global private equity firm Warburg Pincus opened an office in Singapore this year to explore opportunities across Southeast Asia, while Warburg Pincus backed-AAG Energy, private equity funds Global Natural Resource Investments, Blue Water Energy and Kerogen Capital are looking to invest in the region, industry sources said.
AAG said it submitted a bid to acquire certain oil and gas assets but did not specify if these assets were in Southeast Asia. Warburg Pincus declined to comment while the other companies did not respond to Reuters' request for comment.
At least half a dozen senior management staff at oil and gas companies, including Lafferrandre, Paul Blakeley who spent more than 20 years at Repsol-owned Talisman Energy Inc and Geoff Freer, who was with Mubadala Petroleum, are also looking to raise funds to invest in the energy space in the region, according to their LinkedIn profiles.
(Additional reporting by Anshuman Daga; Editing by Lincoln Feast)