Tempted to invest in natural resource private deals?

The past 18 months has seen one of the more curious divergences we have ever seen: natural resource public equity has seen large liquidations while natural resource private equity have not.  While we don’t believe that there is anything fundamentally wrong with investing in natural resource assets via private investments, this divergence has led to a valuation has of upwards of 35% compared with public valuations, according to our models.

Normally, public assets trade at a premium, due to the discount for lack of marketability applied to private equity investments. Today, this is just the opposite. Moreover, our models show that on average, public companies are drilling better wells than their private counterparts, by as much as 40% on average. We think that public market investors are simply frustrated with owning energy and natural resource assets, which has led to widespread liquidation – and created unprecedented opportunity in the asset class today.

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