Despite challenges since 2020, the oil and gas industry continues to attract interest from family offices, which remain at the forefront of the sector’s evolution. Andrew Cohen spoke with experts and family office leaders about how the industry is increasingly looking to this source of capital to fill a gap left by private equity firms, which have stepped back due to ESG policy pressures to divest from fossil fuels.
In another report, we explore a recent Art Basel and UBS study that reveals a surprising trend: Many high-net-worth individuals inheriting art collections from previous generations simply don’t want them. The main reasons? Estate taxes, mismatched taste or style, and insufficient storage space for the collections.
On the topic of art, I'm excited to announce that Crain Currency will be hosting an invitation-only family office event Dec. 4 in Miami. I’ll be moderating a fireside chat with leading experts about the art of investing. To request an invitation, please click here.
As always, we appreciate any comments, ideas or insights that would make this newsletter more useful. I look forward to growing this family office community with your help. Please email me at [email protected].
HANDPICKED: Family offices fuel oil and gas investments as private equity retreats
By ANDREW COHEN
As investment in the U.S. oil and gas industry struggles to return to pre-2020 levels, the industry is increasingly seeking family office capital to help fill the void of private equity firms that distanced themselves from the space amid ESG policy pressures to divest from fossil fuels.
Private equity poured $48.2 billion into U.S. oil and gas deals in 2019, but that number cratered to $17.3 billion in 2023, according to valuations provided to Crain Currency by PitchBook. So far this year, private equity investments have climbed back to $34 billion across 86 deals — still much less than the $49.8 billion from 278 deals that PitchBook tracked in 2017.
“For the first time, there’s been a really unique opportunity for family offices to get engaged in an upstream investment,” Doug Prieto, CEO of Tailwater E&P, told Crain Currency. “The family offices we are working with are very smart, financially sound and thoughtful.”
Tailwater E&P is the upstream unit of Tailwater Capital, a Dallas-based private equity firm that specializes in the energy industry. “Upstream” is the part of the oil production process focused on drilling into the ground. Other production stages are midstream, meaning the pipelines that transport gas products; and downstream, where crude oil or natural gas is refined and purified.
The vast majority of family office investments have come in upstream, followed by some in midstream, while downstream is reserved for major global refineries. Aside from directly funding projects in these stages, family offices can contribute to broader services in oil and gas.
“The services side is very undercapitalized. I think that’s a massive opportunity in the United States,” said Andrew Robertson of the Louisiana-based family office Robertson Energy. “There’s middle-level engineers at each one of these super-major companies. Those guys are relying on some of their service providers to provide that technical service of how do I move this molecule, or how do I get this out of the ground correctly, or how do I solve a well that’s stuck.”
Longer capital, better deal quality
In 2022, Tailwater E&P completed an upstream transaction that raised $900 million from six family offices in just eight weeks. This summer, the firm completed a $280 million drilling deal in which 40% of the capital came from family offices. Family offices view these opportunities as hedges against inflation, Prieto said, and they often serve as fixed income replacements or substitutes to private equity within their portfolios.
“The quality of deals we’re seeing is some of the best I’ve seen in my career; because from about 2010 to 2017, our industry was capital-saturated, so deal quality was not as good,” he said. “Today, the opposite is true. There’s less capital chasing more deals, so deal quality has improved.”
Tailwater E&P’s investments aim for around a 15% to 20% annualized yield and target private-equity-style rates of return, he said.
Family office capital is largely replacing that of pensions, endowments and foundations, which departed oil and gas in recent years over concerns over environmental, social and governance (ESG) policies. Keith Behrens, managing director and head of energy at the family-owned investment bank Stephens Inc., said his firm values the long-term strategy deployed by family offices in oil and gas.
“Family offices don’t have a time limit on their capital,” said Behrens, whose firm normally sees family offices invest in oil and gas deals in the $20-million-to-$200-million range. “There’s more of a long-term horizon, and I think that’s a big attraction; because oil and gas goes up and down, and if you have to time the cycles right, that could make it more challenging from an investment perspective.”
Tailwater is purchasing long-life assets with proven streams of cash flow for compressed valuation multiples, Prieto said. “Where family offices differ from foundations and pensions is they are more nimble,” he said. “They can move more quickly when they see an opportunity.”
Among the biggest family office transactions in oil and gas was PureWest Energy’s $1.84 billion merger in 2023 with the PW Consortium — a combination of capital from financial institutions and family offices including A.G. Hill Partners LLC, Cain Capital LLC, Eaglebine Capital Partners LP, Fortress Investment Group, HF Capital LLC, Petro-Hunt LLC and Wincoram Asset Management.
‘Energy addition’ not ‘transition’
Industry executives agree that the U.S. decline in oil and gas investments cannot be fully made whole by new family office capital and that they’ll need the return of private equity, banks and other institutional investors.
That path is being challenged by the Net Zero Asset Managers initiative, which launched in 2020 with pledges from the likes of BlackRock, Blackstone, Apollo and J.P. Morgan. Members of the initiative span over 300 financial firms representing over $57 trillion in assets under management shifting from oil and gas to alternative energy sources like electric, wind, nuclear and solar.
“I think what people are seeing is there’s going to be a longer energy transition over time, because the way the world is growing, we’re going to need energy addition instead of energy transition — we’re going to need all of the above,” Prieto said. “The U.S. is the best steward of energy production in the world, and we continue to get better and better. So I think we want to produce domestically as much as we can, regardless of who is in office.”
Could Republicans trump ESG?
Stock prices for U.S. oil companies jumped Wednesday after Donald Trump’s election win, as the former president ran on an agenda committed to increasing domestic oil production and imposing higher tariffs on oil imports. Trump’s return to the White House likely means further support for anti-ESG legislation that Republican lawmakers have tried to impose over the past year.
Rockefeller Capital Management — the wealth management firm whose origins trace back to America’s original oil tycoon, John D. Rockefeller — says it is navigating ESG mandates from client investors while holding a stance that prioritizes fossil fuels.
“As much as we support the decarbonization effort, the world will continue to run on fossil fuels for decades to come — just because from a cost standpoint, efficiency standpoint and reliability standpoint,” said Jimmy Chang, chief investment officer at the Rockefeller Global Family Office.
“But we do have clients who are selective. Some people want unconstrained investment mandates; some have certain segments they don’t want to invest in. We will carry out their mandate and assign portfolios accordingly."
Estate taxes, limited space push heirs to sell inherited art
By ANDREW COHEN
Estate tax considerations and a lack of space are the top reasons that heirs are deciding to not keep art they inherit, according to a new study on global collectors from Art Basel and UBS.
The survey found that 55% of inheritors were motivated to sell art due to not having enough space to keep them, while 47% used the proceeds to help pay estate taxes. Among Gen-Z and millennial respondents, 32% cited a “lack of fit” as their reason for selling or donating inherited works, suggesting their tastes in art differ from older generations.
Art Basel and UBS surveyed more than 3,660 high-net-worth individuals (HNWIs) from 14 global markets. The survey found that average allocation to art among HNWI slumped to 15% in 2024, a drop from the 19% average in 2023 and a peak of 24% a year prior.
However, the survey’s richest individuals, with at least $50 million, have maintained a 25% average art allocation this year.
Heirs could be further pushed to sell art for estate tax reasons leading up to the expiration of former President Donald Trump’s 2017 Tax Cuts and Jobs Act. Should that policy expire at the end of 2025 without further legislation from Congress, the U.S. federal estate tax threshold is expected to be cut in half from its current exemption level of $14 million.
Despite an overall drop in art spending and portfolio allocation, the Art Basel-UBS survey found that 80% of HNWIs are concerned about preserving their collection for future generations. Among them, 65% already have a succession plan in place to give works to their partner or spouse, and 43% enacted a similar plan for their children. Nearly half (49%) plan to donate their art to museums.
Related Reads:
> How UBS seeks to help family offices build legacy art collections | Crain Currency
> Karen Boyer describes how to get ready for Art Basel Miami Beach | Crain Currency
LOOSE CHANGE
Aspen Standard acquires Summitry, commits to RIA acquisition: Aspen Standard Wealth, which takes a long-term approach to buying registered investment advisers (RIAs), has acquired Summitry, based in the San Francisco Bay Area and with more than $2.8 billion in assets under management.
Reputation, lending pedigree bring Destiny Family Office to Goldman: Destiny’s Tom Ruggie moved nearly $500 million in client assets to Goldman Sachs Advisor Solutions, banking on the allure of the Wall Street giant’s brand recognition over more established firms in the registered investment adviser (RIA) custody market.
Nikki Beach unveils plans for Caribbean resort and residences: Nikki Beach Hospitality Group has teamed up with Ayre Group to launch the Nikki Beach Resort & Spa Antigua on Jolly Beach, Antigua, a development valued at over $400 million.
Help us with a story: We’re working on a story about how family offices are reacting to the presidential election. If you have any comments on the topic, reach out to [email protected].