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CIT: Energy Sector M&A Activity Strong, Growth for Private Equity Firms

March 05, 2013, 07:23 AM
Filed Under: Energy

According to Mike Lorusso, Group Head of CIT Energy at CIT Group, due to the attractive growth potential for developing shale and conventional oil & gas resources, the 2013 M&A market should be active. Larusso says to expect modest to high activity in the power sector as it moves to take advantage of the abundance of cheap gas reserves in the U.S. and the desire to utilize more renewable resources. Lorusso further discusses expectations for natural gas, prospects for North American energy independence and trends to watch in the “2013 U.S. Energy Sector Outlook,” the latest in a series of in-depth executive Q&As featured in CIT’s Executive Spotlight series.

Concerns Over Government Restrictions

Two immediate concerns facing the energy sector are environmental regulation on fracking and tax subsidies related to renewable energy. The Federal government has so far deferred to states on the fracking issue, with only a few states placing restrictions.

“Congress has extended the wind energy production tax credit for one year, but there is waning support for this, as the intention was for the industry to become self-sufficient,” said Lorusso. “Due to its continued need for tax subsidies and the desire for tax reform I expect wind power to lose tax support. On the other hand, there could be continued backing for solar, as it’s quickly becoming more cost effective, is a relatively new industry and has subsidies through 2016.”

Anticipated Rulings From the EPA

The most anticipated ruling this year from the Environmental Protection Agency will focus on greenhouse gas emissions limits for new power plants. “The worst offender of this tends to be coal plants, especially older ones,” said Lorusso. “Many utilities who own the majority of these plants have already announced planned retirements of certain plants due to the costs associated with operating and upgrading them,” said Lorusso.

Knocking on the Door of Energy Independence

“One fact to be understood around the thesis of U.S. energy independence is the global interdependence and trade of energy as a commodity product,” said Lorusso. He adds, “We first must view this as North American energy independence, which would include the vast Canadian oil deposits from oil sands and shale formations. With that consideration, North America may be able to reduce our need for oil imports to a level where we could essentially be ‘energy independent’ in about a decade.”

Private Equity Firms Hot on Energy

“The energy sector provides many growth opportunities for private equity firms looking to invest in the sector through a variety of means,” said Lorusso. “In the oil & gas sector they can invest directly by backing a management team exploring for oil & gas production or indirectly by investing in companies that provide the support services to those production companies. In the power sector, firms can invest in both conventional and renewable power plants,” he concludes.

Read the full 2013 U.S. Energy Sector Outlook.

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