Class of 2020 | msprin@sas.upenn.edu
Carlyle Group backed Assala Energy announced March 24th they would be acquiring Royal Dutch Shell’s onshore assets in Gabon, Africa for $587 million. Shell has recently sold its North Sea assets to private equity-backed Chrysaor for $3.8 billion. These sell offs have been steps in Shell’s $30 billion disposal program, which was started after the $54 billion merger with BG Group. Private equity firms have taken advantage of smaller oil exploration and production assets that are sold off by larger companies as the firms are able to cut costs and run the assets outside of a larger bureaucratic institution, which results in greater realized profits. Marcel van Poecke, head of Carlyle International Energy Partners (CIEP) has stated that "All these acquisitions are small compared with the majors. So you create much smaller entities, but very focused entities which helps with capital allocation and costs." This focus on smaller entities that are often put aside by large oil companies will lead to increased profitability that would be unrealized if the assets remained under the control of a bigger player such as Shell.
Private equity firms have been increasingly interested in expanding their presence in international oil exploration and production since the collapse in oil prices in 2014. Firms have been acquiring smaller assets from large oil companies hoping to reduce their debt and focus on a smaller number of operations in the natural resource sector. However, American private equity funds such as Carlyle, Blackstone and CVC Partners have begun hiring management teams with local experience to run operations in countries with less transparency and financial framework than in Western economies. Carlyle invested in Assala Energy, which is led by former Tullow executive David Roux, to run operations in Gabon, where members of their team have previously worked at oil and gas producer Perenco.
In addition to focusing on cost cutting and increased productivity within the newly acquired assets in Gabon, Van Poecke added that Carlyle plans to increase production in Gabon and possibly other areas of sub-Saharan Africa moving forward. More specifically, Van Poecke sated Carlyle will "allocate more capital for infill drilling in Gabon itself and there is room to grow." The assets in Gabon are currently producing 60,000 bopd, but Carlyle believes they can improve this number in the future. Due to this acquisition’s overlap between Carlyle’s $2.5 billion CIEP fund and the $698 million Carlyle Sub-Saharan Africa Fund (SSA), both funds will provide funds to carry out the deal. With the deal, about 430 local Shell employees will become Assala Energy workers, and Assala will take on $285 million of debt under the deal. The transaction is expected to close sometime in the summer of 2017.