After a multiyear hiatus, private equity is returning to upstream oil and gas, with the likelihood of raising $10 billion to $15 billion in investments, according to experts who spoke at the World Oilman’s Mineral & Royalty Conference in Houston.

In an optimistic comeback, private equity firms are looking to raise at least $25 billion, said Jeff Eaton, managing director and global co-head of Eaton Partners, but added that firms will be lucky to get $10 billion to $15 billion. Holdouts remain, specifically investors less tolerant of boom-bust cycles and sticklers for ESG principles.

“We’re on the cusp of doing our first upstream fund in three years. We purposefully did not raise an upstream fund for three years,” Eaton said. “The market demand was not there.”

Reuters reported in November that EnCap Investments was raising its first upstream private equity fund in five years.

Investors have kept their distance from upstream in recent years mostly because of low returns, said Eaton, but added that new money flow has now revived investor interest. Renewed investor curiosity also comes in a market where the war in Ukraine has made energy security loom larger than ESG concerns, as well as a political environment where natural gas is accepted more as a transition to cleaner energy.

The Canadian Pension Plan purchase in February of a 49% stake in the California oil venture Aera Energy was seen as an indicator in favor of new energy investments in the public upstream space.

Newcomers will enjoy a low barrier to investment with no need for an operating team, with mineral and royalties providing some distance from ESG issues and a relatively less volatile asset class, said Conrad Gibbins, managing director at Jefferies, who noted new investor interest from wealthy family offices, hedge funds and some international investors.

“It’s an extremely fragmented place, and I think it’s one where we will continue to see robust interest in the asset class,” Gibbins said. “There’s a lot of guys looking to passively invest in oil and gas.”

John Donovan, founder and managing partner of Donovan Ventures, said the conditions are not yet there for a larger consolidator to reduce fragmentation.

“There’s guys doing piecemeal, but they don’t have the trade volume they need to bang out a big deal, and there’s not a ton of big mineral packages to sell,” Donovan said.

Gibbins said the new mix of investors is bringing a range of different strategies.

“In the regular mineral space, we've seen a range of different strategies. Some private equity funds have dedicated mineral funds. Some have rolled up their own teams in one bigger platform. Some invest out their generals funds, some invest out of their credit fund,” he said.

An example of the new investment was announced in late January when EnCap extended $2.3 billion to Double Eagle Energy Holdings IV and its affiliates to acquire and develop top-tier accretive drilling opportunities in the Permian Basin.

Gibbins cited about 30 confidential agreements in his company’s sell-side processes as an indicator of new interest.

“I think the oil and gas market’s time is coming. With the macro backdrop around inflation and commodities, there’s going to be a rising tide here,” Donovan said.

He said his company is looking to take on its first minerals-only assignment.