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Like other industries, natural gas storage hasn't seen a lot of deals lately, and slim attendance at an Infocast conference about the subject this week in Houston indicates little activity in the sector. That wasn't the case just two years ago, when companies were clamoring to buy existing facilities given what many believed would be a storage shortage due to future supplies of liquefied natural gas coming from overseas. But now there's almost an oversupply of storage in some places, mostly along the Gulf Coast area, and the bust of the financial markets last fall dried up lending for new projects in needed places and for dealmaking in the industry.
There are some glimmers of hope. There are pockets of the country where storage is needed, including the hot Marcellus shale play in the northeast. And there are private equity firms itching to spend raised capital on an investment where they can earn some fat returns. Wednesday's private equity panel -- which included David Marchese from Haddington Ventures LLC, Andrew Makk of Energy Capital Partners (formed by former Goldman, Sachs & Co. [NYSE:GS] investment banker Doug Kimmelman) and Bradford Nordholm of Starwood Energy Group -- said they were all looking for investments, with Starwood being a new entrant to the field. "The attendance here indicates there are fewer buyers, which could mean more opportunities in a less crowded space," Makk noted. Nordholm also sees banks turning around, wanting to get loans on their books for 2009 and certainly in 2010. "We see plenty of evidence that things are beginning to thaw," he said. Another possible buyer for storage facilities, either finished or near completion: utilities, which need to store natural gas for their power plants so they can keep the lights on during peak demand. Master limited partnerships are also beginning to recover and need acquisitions to keep boosting their distributions to unitholders. As for valuations, Thursday's panel of investment bankers -- Tim Watson from CIBC World Markets, Rob Pacha from Evercore Partners Inc. (NYSE:EVR) and Bob Hallett from FBR Capital Markets (NASDAQ:FBCM) -- thought the range was between 8 to 9 times Ebitda, versus double digits just a few years ago. But there's only been a handful of deals in the last two years, so it's difficult to come up with realistic comps. There's little officially on the market right now, although unofficially Houston-based Falcon Gas Storage -- backed by Arcapita BSC -- may have some of its assets for sale. An interesting sign: Its new CFO, Antoine Lafargue is an Arcapita employee. Part of the reason for the lack of activity has been a disconnect on price between buyers and sellers. But Pacha thinks that may turn soon, with the economy improving. Says he: "Some buyers will reach up to get deals done." Let the party begin. - Claire Poole
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