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CIT: Outlook on Energy Sector Growth Opportunities, Challenges

October 15, 2014, 06:55 AM
Filed Under: Energy

For middle market companies in the energy sector, opportunities for growth are abundant due to an increase in U.S. gas and oil production. Companies providing supporting services, such as technology and equipment to more economically and efficiently extract gas and oil, as well as to process and transport the fuel, are also benefitting. As a result, middle market energy companies looking to grow are finding easier access to lending and finance. These are some of the views expressed by Mike Lorusso, Group Head and Managing Director, CIT Corporate Finance, Energy, a division of CIT Group Inc. in “Fueling the Growth of the U.S. Energy Sector”, the latest piece of market intelligence in the award-winning CIT Executive Insights video series (

“Private equity firms are also showing more interest in the energy sector, further driving the growth and investment capital that is needed to continue expanding the U.S. energy industry,” said Lorusso. “With the explosion of mid-continent fuel production, especially the Bakken Shale, companies are looking for financing to build pipelines, terminals and processing facilities quickly to meet growing production capacity needs.”

Adding to the growth of the U.S. energy landscape is the expansion of fracking, growing renewable energy sources and liquefied natural gas (LNG). From production and processing to delivery and storage, companies are looking for partners to help them finance all aspects of the energy production and delivery chain.

Lorusso offers several takeaways on the state of the U.S. energy sector:

  • Fracking Is the Growth Engine behind Oil and Gas Production: Nearly two-thirds of the wells being drilled in the U.S. utilize fracking. It’s an important growing part of the industry. Growth in new states will be done in a controlled, safe manner. Mexico is also exploring fracking opportunities.
  • M&A Activity Is Growing with the Energy Industry: M&A activity has been commensurate with the growth of oil and gas production within the U.S. market. Assets, such as power plants, gas and oil reserves, equipment and rigs are changing hands, as well as companies.
  • Renewable Energy Will Grow from Solar, Not Wind: With the end of government tax credits, the wind market has matured. Solar energy will grow as technology scales down to residential use, increases in efficiency and incorporates battery storage technology. Although renewables are a small part of the overall electric power supply, it’s the fastest growing part right now.
  • Capital Investment Is Needed to Finance LNG Facilities: With about 10% of production coming from LNG in the next few years, a good deal of capital investment and several big firms are getting behind the LNG market with equity.
  • The Lack of Skilled Labor Is Impacting the Industry: One of the near term concerns within the energy sector, specifically within oil and gas, is the lack of skilled labor to keep up with the pace of growth. Middle market energy companies are actually being limited in their expansion plans due to the lack of skilled labor available, especially in the remote regions where many of the shale plays are occurring.
  • Fuel Supplements Key to Energy Independence: As the country gets closer to nearing peak production, the U.S. will need to supplement other fuels for oil, such as natural gas for vehicles and electric cars.
  • Business Expansion Could Include Mexico: One of the growth opportunities for U.S. middle market energy firms is to take their knowledge and experience to Mexico where the government has opened the sector to privatization and private investment.
  • The Outlook for the U.S. Energy Sector Is Positive: Growth in the production of oil and gas and improving technologies to extract and transport oil and gas will continue to propel the industry into the next year. There are no disruptive technologies or any big innovative advances on the horizon, with an expectation for incremental advances and continued growth within the U.S. energy sector.

To read the full report - Fueling the Growth of the U.S. Energy Sector, click here.


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