Private equity firm Carlyle Group LP (CG.O) said on Thursday it has bought nearly half of an energy-focused peer, NGP Energy Capital Management LLC, as it seeks to capitalize on a revolution in U.S. energy markets.
Vast reserves of natural gas and oil unlocked from underground shale deposits are driving an energy renaissance in the United States as companies scramble to raise money for projects, making them more open to private equity investments.
"Energy, and particularly carbon-related energy, is about the single most attractive global area in which to invest today because of the revolution going on in the U.S. and because of the need for energy around the world," David Rubenstein, Carlyle's co-founder and co-chief executive, told investors and analysts on a conference call on Thursday.
While Carlyle has been making private equity investments in the sector through its general buyout funds, its infrastructure fund and its middle-market funds, it lacked the dedicated energy buyout platform that most of its major peers boast.
KKR & Co LP (KKR.N) said in June it had raised a $1.25 billion natural resources fund, in addition to $350 million of capital outside the fund for such investments. Blackstone Group LP (BX.N) said in September it had raised just over $2.5 billion for an energy-focused private equity fund.
Apollo Global Management LLC (APO.N) had raised $915 million by the end of September for its first natural resources fund and the firm said on November 9 it expected fundraising to be completed in the fourth quarter.
Carlyle said it had acquired a 47.5 percent interest in energy investor NGP Energy Capital Management, which has $12.1 billion in assets under management, for $424 million, of which $384 million was in cash and the rest in Carlyle shares.
This covers the revenue streams in all of NGP's current and future funds.
Carlyle, which manages assets totaling $157.4 billion, will buy a 40 percent stake in NGP from Barclays Natural Resource Investments, a private equity business of Britain's Barclays Plc (BARC.L), and the rest from NGP's management.
Carlyle also agreed to pay an additional consideration during 2015 to 2018, subject to NGP achieving certain goals. The Washington, D.C.-based firm also has the right to purchase an additional 7.5 percent stake in NGP Energy.
Irving, Texas-based NGP Energy invests in a range of exploration and production Assets in energy and natural resources and has backed several high-profile U.S. deals, including KKR's $7.2 billion acquisition of Samson Investment Co last year.
Established by Ken Hersh and his partners in 1988, NGP has had a 31 percent gross internal rate of return since inception, Carlyle said on Thursday in a presentation to investors.
This is not the first time Carlyle has partnered with another private equity firm on energy investments.
Since 2000, Carlyle and New York-based Riverstone Holdings LLC have launched six funds together, focused on buyouts in the energy and power sectors, accumulating about $15 billion in assets under management in total. But the two private equity firms decided to end their joint venture in 2011.
To be sure, Carlyle has had some stand-alone success in energy-focused funds, albeit not in buyouts. Last month the firm said it had raised $1.38 billion for a fund lending to energy projects and companies, almost double its initial target.
Carlyle's energy investments have brought it headaches in its recently announced private equity investment in Los Angeles-based asset manager TCW. EIG Global Energy Partners LLC, a rival energy-focused private equity firm that was spun off by TCW in 2011, is seeking to block the deal in court on the basis that Carlyle competes with EIG for energy investments and would have access to sensitive EIG data following its takeover of TCW.
A federal judge in Los Angeles last month issued a limited preliminary injunction that allowed the sale of TCW to Carlyle Group to proceed but carved out a fund making payments to TCW and placed it in a trust pending arbitration.
(Reporting by Greg Roumeliotis in New York and Ashutosh Pandey in Bangalore; Editing by Sriraj Kalluvila and Richard Chang)