Politico Article Highlights Threat of Companies Shifting Fossil Fuels to Private Equity Firms

Politico reports on private equity firms spending nearly $154 billion on oil, gas and coal since 2010. These firms aren’t required to disclose to regulators their holdings or risks, and any information such funds release to their investors is subjective and not available to the general public.

Politico, Mar 29, 2021: “When companies go green, the planet doesn’t always win.”

When a French utility got rid of the last of its European coal plants in 2019, the company Engie SA touted the move as a step toward its goal to eliminate carbon emissions.

But Engie SA didn’t close the four plants in Germany and the Netherlands. It sold them to Riverstone Holdings, a U.S. private equity firm that used the newly acquired assets to start a power company serving customers in western Europe.

Regulators, investors and climate advocates are worried that utilities, oil producers and others, in their bid to meet investor and societal demands, are simply shifting plants, pipelines and other polluting assets to private firms that are less accountable.

“There is a broader public interest and need to understand all contributions to climate change across public and private markets,” Climate Director Alyssa Giachino told Politico. Private equity firms manage $4.5 trillion globally and are expected to grow substantially, and “producing a glossy report tells you nothing.”

An example of one such report from Blackstone said oil exploration and production accounted for less than 3 percent of the value of the firm’s portfolio. The firm said its renewable energy investments were projected to displace 3.6 million metric tons of carbon a year.

The report failed to mention that just one of its holdings, the Gavin coal plant in Ohio, emits more than triple that amount of pollution, or 13.5 million metric tons of carbon, according to EPA data from 2020. The report also didn’t mention midstream assets such as Tallgrass, which pipes oil from Wyoming, Colorado and Kansas to a storage hub on the Gulf Coast and is building an export terminal in Louisiana.

See our September 2020 report: “Blackstone Drills Deeper as Investors Shift Away From Fossil Fuels.”

Private equity-backed companies comprised the majority of oil and gas producer bankruptcies in 2020. Of the companies that filed for bankruptcy last year, 57 percent are backed by private equity firms, or 26 of the 46 filings.

The high number of oil and gas producer bankruptcies last year, as tracked by Haynes and Boone, made clear the risks of fossil fuel exploration and production as the pandemic impacted both demand and pricing.

Notably, 2020 saw an increase in bankruptcies with debt loads greater than $1 billion, with an unusually high number relative to the prior six years. More than two thirds (71%) of 2020’s multibillion-dollar bankruptcies were backed by private equity.

Private equity’s extensive use of debt to fund oil and gas acquisitions exposed investors to greater risk. The combined debt of the 46 oil producers that filed for bankruptcy through December 2020, was around $53 billion. Private equity-backed oil producers accounted for more than 82 percent of that debt. The average debt held by bankrupt private equity-backed crude producers was more than three times that of their non-private equity-backed peers.