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.
“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, while speaking at a media event this past May.
“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."
