Quantum faces increased risks for its fossil fuel investments

After hitting energy spending record in 2024, Quantum faces increased risks for its fossil fuel investments

Quantum Capital, a Texas-based energy specialist private equity firm, has spent $18.7 billion on fossil fuel projects across 99 energy deals since 2014 and has increased spending significantly since 2020. As Quantum Capital grows its fossil fuel portfolio at an accelerated pace and expands its reach overseas, troubles continue to mount for one of Quantum’s largest projects and first liquefied natural gas (LNG) terminal, Saguaro LNG, the largest proposed LNG export terminal in Mexico. With 96 percent of Quantum’s energy portfolio in fossil fuels, it’s time for the firm to change course, cancel the risky and unpopular Saguaro LNG project, and redirect investment capital to lower-cost and lower-risk energy projects like solar and wind.

Quantum spends billions and utilizes debt to expand dirty fossil fuel portfolio

Quantum Capital is a major funder of energy operations in America and is expanding its reach overseas. The firm has spent at least $19.6 billion on energy projects since 2014, with at least $18.7 billion on fossil fuel operations specifically, according to an analysis of data available from Pitchbook. The firm’s energy spending is inconsistent year to year, with deal amount peaking in 2017 at $3.4 billion over 14 energy deals and bottoming out in 2020 at $367 million with only five energy deals. Quantum’s energy spending has been increasing since 2020 and set its spending record in 2024, spending $5.3 billion across 11 energy deals.

PESP analysis shows that 73 percent of the deals Quantum completed were leveraged buyouts (LBO) and growth expansion deals. LBOs are when a company is acquired using a large amount of debt (typically around 80% of the money used to acquire a company is debt), or financed capital, then adds that debt onto the acquired company’s balance sheet.^[1] Due to the added financial stress of an LBO, companies can end up bankrupt after a private equity firm has exited the investment.^[2] Quantum has invested at least $11 billion in energy LBOs since 2014. Growth expansion deals are when a firm injects a large amount of money into an established company over a particular period, essentially “financially backing” the company for some time funding further growth, and sometimes assuming some operational control; Quantum has spent at least six billion dollars on these types of energy deals.

In August 2024, Quantum made two large fossil fuel LBOs; the firm agreed to acquire Cogentrix, one of the largest portfolios of gas power plants, from The Carlyle Group for $3 billion and Western Colorado drilling operator, Caerus Oil & Gas, for $1.8 billion from another private equity firm, Oaktree Capital Management. Quantum is well on its way to breaking its spending record in 2025 as it has already spent at least $2 billion on a massive take-private LBO with its acquisition of Chevron and TotalEnergies’ offshore drilling assets in the Congo.

As of January 2025, Quantum had 96 percent of its energy portfolio invested in fossil fuel assets. The vast majority of the firm’s 20 energy companies were upstream oil and gas drilling operations, three midstream companies, and only one company that focuses on producing solar and wind energy. In 2023, Quantum’s upstream operations were responsible for an estimated 152 million metric tons of CO2e emissions annually–equivalent to the emissions of 398 gas-fired power plants in a year^[3].

Private equity investor of last resort

Private equity firms are often considered the investors of last resort, picking up fossil fuel assets offloaded by public oil giants that are looking to shed assets that are no longer wanted. In PESP’s analysis of Quantum Capital’s energy deals since 2014 from data available on Pitchbook, the firm has completed 18 acquisitions of oil and gas assets from public companies, the vast majority of which were upstream oil and gas drilling assets. A few of those upstream assets are CNX Resources, Gastar Exploration, and Ovintiv’s Uinta Basin assets. While the firm has completed a higher number of take-private deals totaling at least 3.1 billion dollars, Quantum has spent far more money on fossil fuel acquisitions from other, larger, private equity firms, totaling 7.2 billion dollars. Nearly two-thirds of the $10 billion spent by Quantum on LBOs were in acquisitions from other private equity firms.

Quantum doubles down on debt-funded acquisitions while stranded asset risk increases

As Quantum continues to increase its spending on debt-funded oil and gas acquisitions, the private equity sector shows signs of decline. For the first time since 2005, the private equity industry has shrunk in size of assets under management, fundraising for private equity funds has sharply declined, and firms have had difficulty selling their assets and completing returns on investment back to limited partners. These challenges could increase the risk of stranded assets. Distributions to limited partners, typically public pension funds, have decreased to their lowest percentage in over a decade, causing a squeeze on pension funds that rely on regular payouts from their investment commitments to fund retiree’s pensions.

A recent high-profile billion-dollar private equity sale of a company, now the subject of a criminal investigation, may bring more scrutiny to future sales for firms looking to offload a backlog of portfolio companies. A report by Bloomberg details how private equity firm Lindsay Goldberg attempted to sell portfolio company Schur Flexibles in 2019. Initially failing to sell that year, the firm ended up selling to an investment firm in 2021, and Schur Flexibles almost immediately went into financial distress–resulting in a criminal probe investigating whether private equity firm Lindsay Goldberg reported highly engineered profits. According to Bloomberg: “It’s a cautionary tale for investors eager to pump cash into company buyouts.”

Quantum may be looking to bail out of controversial and troubled Saguaro LNG project

Saguaro Energía is a proposed 15 mtpa LNG export facility in Puerto Libertad, Mexico, an area designated as a UNESCO World Heritage Site in the Gulf of California and a Biosphere Reserve. The project is being developed by Texas-based company Mexico Pacific, a portfolio company of Quantum, and appears to be Quantum’s first and only LNG project in development. The project also includes a 500-mile cross-border pipeline to transport fracked gas from the Permian Basin in the US Southwest to the LNG site in Mexico. If the project is built and becomes operational, the Saguaro LNG terminal will emit an estimated 5.7 million metric tons of CO2 equivalent annually^[4], equivalent to the emissions of 15 natural gas-fired power plants.^[5]

The project has been in development since at least 2018, with Quantum investing development capital as early as 2021. Mexico Pacific has struggled to obtain authorization from the US Department of Energy (DOE) for the Saguaro Connector Pipeline due to insufficient permit applications, missed deadlines, and lawsuits filed against its initial approval. As of March 5, 2025, Mexico Pacific was still waiting for authorization from the DOE for an application submitted to export additional LNG. The Mexican portion of the pipeline, the Sierra Madre pipeline, also faces permit hurdles, and risks of cartel violence have increased around the proposed pipeline path. The project as a whole has been marred with legal setbacks and community opposition. It now appears Quantum is exploring options to exit. On February 6, 2025, Bloomberg Lawreported the firm hired Lazard Inc. to explore a possible sale of Mexico Pacific.

Shortly following this news of a potential sale, multiple new challenges have come to light, creating increasing uncertainty over the future of the project.  Amid reports of layoffs of workers in Houston and Singapore, the company announced in mid-April that it will be consolidating its operations and transitioning its headquarters from Houston, Texas to Mexico City, stating “This strategic step aligns with the continued advancement of our flagship projects designed to enhance Mexico’s position as a leader in energy infrastructure and LNG exports.” On March 3rd, it was reported that Saguaro LNG is facing five injunctions against it, according to Mexico’s Environmental, Energy, and Safety Agency (ASEA)– adding even more barriers to commencing construction. While a sale has not been announced, a March 5th letter to the DOE  from Mexico Pacific General Council states multiple changes of ownership for the company in the past two months, with the last change being Mexico Pacific Holdings, L.P. at 100 percent ownership while “Quantum LNG Holding will retain material non-equity economic interest.” And on March 10, Reutersreported that several US LNG producers are attempting to renegotiate deals with buyers and contractors to cover increasing costs, including Mexico Pacific. Now amid a trade war with China halting LNG imports, Mexico Pacific has been attempting to negotiate for increased liquefaction fees with Zhejiang and Guangzhou, two Chinese buyers that have already finalized deals with the company; both buyers rejected Mexico Pacific’s offer. Furthermore, the company wants to renegotiate its deal with Bechtel, the engineering firm hired to construct the project–claiming the agreed-upon price is too expensive, Reutersreported.

Major US and Mexican environmental groups launch campaign to stop Saguaro LNG puts a spotlight on Quantum Capital

Representatives from US environmental advocacy non-profit Natural Resources Defense Fund (NRDC) and Conexiones Climáticas, the lead organization of a Mexican-based coalition organized to stop the Saguaro LNG terminal ¿Ballenas o Gas?, joined forces at SXSW on March 10th to present an art instillation and activation on the beauty and importance of Mexico’s Gulf of California and speak on a panel about how dangerous Saguaro LNG would be to the marine rich area and its people. Moderated by Mexican Actor, Director, and Producer, Gael Garcia Bernal, the panel focused on the Wall St. actors responsible for the proposed Saguaro LNG terminal and highlighted the major financial advisor of the project, JP Morgan, and Mexico Pacific’s owner, Quantum Capital.

(Photo Credit: NRDC)

(Photo Credit: Sergio Flores for SXSW)

Mima Holt, NRDC Global Coordinator for International Climate highlighted the role Quantum plays in the development of the project and how US pensioners are unwittingly tied to Saguaro LNG :

“Private equity happens behind blackout curtains, Quantum Capital is one such entity who owns Mexico Pacific and Saguaro LNG. 96 percent of Quantum energy portfolio is in fossil fuels. It’s usually through PE firms and PE activities that normal people become unwitting participants of this entire ecosystem, and that is because pension funds are invested in PE. Oregon State pension fund, Wisconsin, Washington DC, Orange County are invested in Quantum Capital, even Texas Teachers are invested in Quantum Capital. The retirement funds of these civil servants should not be invested in dirty energy, it should be invested in clean technologies and energy of the future. Wall Street is the greatest enabler of big oil and gas. And they are more than happy to sacrifice the Gulf of California and other sites like it for the whims of the American oil industry.”

NRDC, Conexiones Climáticas, and the wider ¿Ballenas o Gas? coalition put a spotlight on Quantum and will continue to build momentum in opposition to the Saguaro LNG project, which could increase Quantum’s reputational risk.

It’s Time for Quantum To Change Course

As of January 2025, 96 percent of Quantum’s energy portfolio companies were invested in fossil fuels and the firm was the second worse offender on the 2024 Private Equity Climate Risks Scorecard, earning a D. Since 2014, Quantum has spent $18.7 billion on fossil fuel deals, the majority of which were debt-funded LBO’s. With private equity industry trends worsening for private equity exits, Quantum is charting a risky course by continuing to be the private equity fossil fuel investor of last resort. The investors will be the ones paying the price if Quantum continues to sink money into risky fossil fuel investments.

Quantum is in a unique position to stop the dirty energy offloading cycle and decrease the risk of stranded assets by canceling the Saguaro LNG project, which is being developed on shaky ground with a variety of legal, financial, geoplitical, and regulatory roadblocks in front of it, and reinvest capital into more energy that is more efficient, cheaper and quicker to build, like solar and wind. Quantum should move to retire existing fossil fuel assets in its portfolio and follow private equity firm Brookfield’s lead and seek to invest in renewable energy due to its “low-cost position.”

Resources

^[1] For more on private equity general practices see: Americans for Financial Reform. “America for Sale? An Examination of the Practices of Private Funds.” Testimony Submitted to the Committee on Financial Services US House of Representatives. November 19, 2019. https://ourfinancialsecurity.org/2019/11/congressional-testimony-2/ ; Appelbaum, Eileen and Rosemary Batt. “A Primer on Private Equity at Work: Management, Employment, and Sustainability.” February 2012. https://cepr.net/report/primer-on-private-equity/ ; Morran, Chris and Daniel Petty. “What Private Equity Firms Are and How They Operate.” ProPublica. August 3, 2022. Accessed July 3, 2023. https://www.propublica.org/article/what-is-private-equity#:~:text=Private%20equity%20firms%20invest%20the,taking%20controlling%20stakes%20in%20companies

^[2] Ayash, Brian and Mahdi Rastad. “leveraged Buyouts and Financial Distress.” California State Polytechnic University. July 19, 2019. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3423290 ; Giachino, Alyssa. “Private Equity-Backed Companies Dominate 2020 Oil and Gas Bankruptcies.” Private Equity Stakeholder Project. January 28, 2021. Accessed June 7, 2023. https://pestakeholder.org/news/private-equity-backed-companies-dominate-2020-oil-and-gas-bankruptcies-2/.

^[3] EPA emissions calculator https://www.epa.gov/energy/greenhouse-gas-equivalencies-calculator

^[4] Emissions calculations were based on an average of five emissions factors of the LNG liquefaction process from the 2020 NRDC study on lifecycle emissions of LNG, “Sailing to Nowhere: Liquefied Natural Gas is Not an Effective Climate Strategy”. Other emissions considerations that can be associated with LNG but were not included in this analysis include upstream extraction, pipeline transport, tanker transport, regasification, and ultimate end uses.

^[5] EPA emissions calculator https://www.epa.gov/energy/greenhouse-gas-equivalencies-calculator