The concentration of private equity ownership in E&Ps has largely diminished according to a Truist Securities review of more than 30 producers that the firm covers—and the overhang on operators could lessen even more in the future.

Bertrand Donnes
Bertrand Donnes, Truist Securities energy research analyst. (Source: Truist Securities)

“We now think it will be less of an issue for many E&P companies, in part due to their ability to participate in a sale and in part due to more methodical exits of their positions versus prior years, where private equity groups would like to liquidate their positions as soon as their lockups expired,” Bertrand Donnes, Truist Securities energy research analyst, told Hart Energy.

Donnes’ equity research found that total private ownership of the E&Ps Truist analyzed are “not as widespread as in the past,” and “recent sales of various private equity E&Ps have had little impact on share price.”

And total private-equity ownership will likely remain flat, or fall, given what’s likely to be a limited number of new operating teams added to private equity’s portfolio companies.

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The report predicted that most future full asset sales will be cash deals, but it also noted that some firms could “ultimately become longer term holders.”

Donnes said that’s been caused by significant changes among the E&Ps, including higher free cash flows, robust returns to shareholders and stronger balance sheets.

One surprising finding: private equity owners are now more diverse than in the past, when large investors were more dominant. Private equity sales “over past quarters decreased much of the concentrated ownership,” the report said.

Donnes said Truist does not have a figure that quantifies the size of the decrease.

Companies Truist studied include EQT, Diamondback Energy, Devon Energy, Chesapeake Energy, Southwestern Energy Company and Magnolia Oil & Gas.

The analysis found two companies with more than 50% private equity ownership, Crescent Energy Co. at 57.1% and Riley Exploration Permian Inc., at 53.5%. SilverBow Resources Inc., was 40.6% private equity ownership, and Ring Energy was 25.1%.

Hundreds of private equity owned properties that remain in the group Truist studied could come to market in the next several months, but Truist expects private equity ownership to remain at today’s levels or lower.

“Essentially, we don’t expect there to be many private assets purchased by the public names, which is the primary way that private equity firms end up owning large amounts of public shares, as the public companies buy the assets with equity,” Donnes said. “We expect the existing positions to either hold at current levels given the attractive multiples/payouts from the E&P group or slowly reduce their positions given the recent run up in the equities.”