Carnelian, a buyout firm, raises eyebrows by trying to sell multiple assets in the energy sector.

Carnelian Energy Capital is selling six of its North American oil-and-gas production investments. This comes at a time when private equity firms are under increasing pressure to return more cash to investors and increase their exits.

The move, which represents most of Carnelian's oil and gas producing companies, and approximately 40% of its total investments, has raised eyebrows in the industry because traditionally, buyout firms space out their sale efforts so as to avoid exhausting the buyer demand.

Sources said that Carnelian was either actively marketing the assets or preparing for auctions in the next few weeks. Sources said that the U.S. deal market, into which Carnelian sells, is more subdued than in recent years, even though they were record-breaking. It is due in part to the uncertainty surrounding crude oil prices. This has led listed energy producers, to prioritise cost-cutting rather than expansion. Carnelian, according to other sources, is looking to sell a combination of long-held assets, at a time where inventory is in short supply. It also wants stakes in gas producers that are attracting increased interest, as the fuel becomes more popular for powering AI infrastructure.

According to sources, the assets have a value ranging from a few hundred millions to over $1 billion. Carnelian and the companies do not disclose production numbers, but they are small producers by global standards.

Sources cautioned that there is no guarantee that Carnelian will divest of all assets. The sources spoke under condition of anonymity in order to discuss confidential discussions.

Carnelian declined comment.

Deals to be made

Houston-based Carnelian is a mid-market investor in energy headed by Tomas Ackerman and Daniel Goodman. Carnelian Energy Capital V closed its flagship fund of $975 million in February 2024. It announced in October that a fund of $600 million would be closed to invest in Canadian energy.

Six sources claim that Carnelian has begun advanced negotiations to sell two of its portfolio companies, in which it made investments in 2020 and in 2022. These are Hawthorne Energy (a Canadian oil producer) and Veritas Energy Permian, a company it owns jointly with Old Ironsides Energy. Old Ironsides Energy is also selling their Veritas stakes, according to one source.

Bloomberg reported that Azul Resources, a natural gas company in which Carnelian made an investment in 2021, agreed to sell certain assets in?Haynesville to Apex Natural Gas. Apex Natural Gas is backed up by hedge fund Citadel.

Six sources confirmed that Carnelian had also been selling Grit Oil and Gas II in the last few weeks. Grit is located in South Texas Eagle Ford Formation and has been a Carnelian investment since 2019.

Carnelian intends to market Zavanna Energy early next year, according to eight sources. Moelis was hired to sell Zavanna, which is a producer focusing on North Dakota's Bakken Basin, said five.

Carnelian only made initial commitments to Parallax and Zavanna last year, according public statements. Private equity firms usually hold an investment for up to three years in order to let its value grow.

Old Ironsides and the six Carnelian Portfolio companies did not respond to comments. Citadel and Moelis declined comment.

According to the Florida State Board of Administration, Carnelian’s second, third, and fourth funds performed well against the industry’s traditional benchmark. They delivered a net rate of return of between 17.2% and 20,8% by the end of 2024. Private equity exits are generally determined by a number of factors. These include favorable market conditions and the success of the investment. Other factors that can influence the timing of the exits include buyer interest, as well as whether or not the firm is planning to raise another fund soon. Investors are increasingly putting pressure on buyout firms to accelerate the pace of their exits.

(source: Reuters)