As an industry at the frontline of navigating a shifting policy backdrop under the new Trump administration, pre-imposition of “Independence Day” Tariffs, energy was experiencing a growth in interest from private equity sponsors both in North America and beyond.
The sector has seen a period of intense consolidation that is now heralding a spate of disposals by oil & gas majors rationalizing their portfolios and selling non-core assets that represent prime targets for private equity (PE) buyers. At the same time, we continue to see additional consolidation taking place in the midstream space, while energy transition remains a deal driver and the mid-market is offering compelling growth opportunities. Overlying all of this is the insatiable demand for electricity that the U.S. is current facing—both as a result of continually increasing electrification throughout and the rapid demand poised by data centers.
Given the pent up demand on the sell-side from investors that have been forced to hold assets longer than they might have liked through a tough exit environment, 2025 was shaping up to be a busy year for buyouts in the traditional energy sector; energy transition transactions remain active—under the cloud of anticipation driving by upcoming changes to the Inflation Reduction Act (IRA), while activity in gas-fired generation and behind the meter generation has rapidly increased as utilities cannot incorporate renewables onto the grid fast enough to support the load growth.
A Strengthening Fundraising Climate
A number of oil & gas focused sponsors are in the market fundraising at the start of 2025, and we expect to see several sizeable closings in the first quarter. Institutional fundraising continues to strengthen in the sector, with the successful closings by EnCap Investments and Quantum Capital Group on $6.4 billion and $10 billion, respectively, in the latter part of 2024, as well as Pearl Energy Investments closing on $999.9 million in February 2025, highlighting that investor appetite is there to support sponsors with established performance records.
There is no doubt that the constituency of investors willing to support large energy funds has shrunk in recent years, with many university endowments and large pension funds rolling out of hydrocarbons, rationalizing the number of energy sponsors they are willing to support and monetizing assets. That exit of capital started as a result of energy generating poor returns through the 2010s, a stark departure from the prior cycle when the energy sector was the investor darling, and was then compounded by volatile commodity prices, over-supply, sustainability concerns and a focus on energy transition that drove a divestment from hydrocarbons.
New investors are now coming into energy, however, with family offices emerging in a more significant role, both as limited partners in fundraising processes and as co-investors. Sponsors are recognizing the ability of such vehicles to move quickly to support one-off transactions that may arise between flagship funds, as well as to provide follow-on capital to portfolio companies.
With returns coming back and more nuance entering the sustainability discussion, our expectation is that we will see more institutional capital flowing in through 2025 and greater liquidity will allow more management teams to get funded. At the same time, plenty of opportunities will be available in the secondaries market as certain limited partners (LPs) look to sell.
An Evolving Regulatory Backdrop
Just as we have seen investor sentiment towards the energy sector shift in recent years, so too the regulatory backdrop has moved. In Europe, the ongoing war in Ukraine and the prospect of power shortages moved regulatory sentiment on from simply prioritizing the move to net zero to instead recognizing the critical issue of energy security. More impactful could be the new tariff regime imposed by the Trump administration and time will tell what the long-lasting results of these decisions on transaction volumes in the energy and infrastructure space.
In the U.S., the new Trump administration has repealed many of the Biden administration’s actions on climate change and the environment. Executive orders are attempting to provide tail winds to liquified natural gas investments and expand oil & gas development on federal lands. While the tax credit transfer market appears somewhat unfazed by the uncertainty surrounding these policy changes, the uncertainty on the IRA is causing a slow down on capital spend in many of the newer energy transition technologies.
For sponsors, there has also been a shift away from simply looking to exit hydrocarbons in favor of green assets, with many now arguing that divesting will do nothing to change global demand. Instead, funds are increasingly looking to use their capital to hold energy assets and manage them responsibly through the energy transition, alongside growing investment into new green technologies.
Navigating the shifting regulatory backdrop will remain a challenge this year, with governments around the world treading a fine line between appeasement on trade policy and tariffs, decisions on whether to continue to pursue net zero targets, windfall taxes on oil & gas companies, implementation of Russian sanctions and ensuring security of supply.
A Growing Opportunity Set
As we anticipate an increase in deal flow for private equity investors in energy in 2025, we see a growing focus on upstream investments in Europe in place of what has historically been an appetite for revenue-generating downstream opportunities.
In the US, midstream deal flow will remain robust in line with continued hunger for drilling and exploration of potential in the minerals space.
There also remains a strong desire globally from private equity to invest into energy transition technologies, particularly in areas like sustainable aviation fuels, carbon capture and green hydrogen, and new gas-fired generation. While questions remain over the profitability of some of the energy transition given the uncertain outlook for subsidies and tax credits, the demand coming from LPs for their capital to support such initiatives means efforts to drive meaningful deployment will continue to be a priority, this combined with the US’s insatiable demand for more power, will lead to a revitalization of the deployment of gas-fired generation alongside continued capital deployment to support the additional renewable generation projects.
The wide-spread imposition of tariffs across the globe by the Trump Administration creates both massive head winds on all infrastructure spend, but also massive opportunity for those who can remain active in the current storm of uncertainty that these tariffs create.
