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Essential Energy Insights - October 2021


Investors finding new opportunities amid energy market turmoil

Investorseyeing U.S. energy assets have a plethora of opportunities at their disposal asa result of the ongoing commodity downturn, Wall Street observers said.

Clientshave begun asking to evaluate investments in natural gas pipeline assets, KyleJones Baker, a managing director at Guggenheim Partners LLC, said at BloombergNew Energy Finance's Future of Energy Summit in New York. "Ithink pipelines are going to be a very popular area [for investors] to look atright now and I think that's because natural gas prices are predicted to staylow for quite some time," Baker said on an investment panel April 5. Naturalgas prices have been hovering in the $2/MMBtu range at Henry Hub.

DavidGiordano, managing director at BlackRock Alternative Investments, also notedinterest in natural gas infrastructure but said it feels different fromprevious expansionary times.

"Idon't think it's the same kind of prospective … type of investing that youmight have seen 10 or 15 or 20 years ago — during the late 1990s boom. I thinkthere will be a much more measured approach to it, but I think there'll beplenty of appetite for those assets," he told delegates at the summit.

Meanwhile,Michael Liebreich, chairman of the advisory board at Bloomberg New EnergyFinance, shared a less optimistic outlook for the more highly leveraged playersin the oil and gas landscape.

"Whatwe're talking about is miscalculation of risk. We're talking about a businessmodel … predicated on being able to find unlimited supplies of capital fromfoolish, and perhaps greedy, investors," he said during a keynote address,referring to the more than 50 oil and gas independents that have sought Chapter11 protection and about 70 companies that are being reviewed for downgrades.

Further,a majority of the industry's roughly $234 billion of new debt issued oroutstanding will roll in the next four to six years, he said. He expects thatscene to get uglier.

LeslieBiddle, a partner at Serengeti Asset Management, said midstream and E&Pequities still have room to fall, too. "If you look at [company]valuations, [investors] are still pricing in higher oil prices than where theforward curve is. I don't think we're done yet. There's still a lot of wood tochop as far as bringing the overall macro supply and demand balance."

Finally,Baker and Suzanne Buchta, a managing directorat Bank of America Merrill Lynch, emphasized the burgeoning market for solar securitizations.

Buchtaworked on San Mateo, Calif.-based SolarCity Corp.'s debut asset-backed securities deal,worth $125 million."In [this] SolarCity ABS deal, 10,000 solar leases had to be put togetherto make up a whopping $125 million bond," she said at the panel. "Ithink there will be a point in time where we see green mortgage-backedsecurities or … more solar-lease-backed bonds, but it's just a matter of movingthere over time."