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Private Equity

Exit Ramp: Zenith May Be Next to Block in Warburg Oil Pruning

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Published: June 9th, 2022
After failing to raise another energy-dedicated fund in 2020, the firm appears to be making good on its promise to transition away from traditional oil investments, where it has invested for 30 years.

Warburg Pincus LLC, a private equity firm with deep roots in the oil patch, appears to be reshaping the way it invests in the industry.

Warburg has launched sales processes for at least two U.S. upstream oil and gas investments in the past few months, RimRock Oil & Gas LLC and Stronghold Energy II, people with knowledge of the processes have told The Deal. And The Deal confirmed Tuesday, May 24, that Colorado natural gas producer Terra Energy Partners LLC, which Warburg has jointly with Kayne Anderson since 2016, is also now on the block.

Given Warburg’s movements over the past 12 to 18 months, the expectation is that the firm could explore further sales in the oil patch later this year if the M&A environment proves to be strong amid high commodity prices and despite recession fears and geopolitical tensions.

And with a healthy serving of its upstream assets up for sale, eyes have turned to Warburg’s remaining midstream holdings, including its crude and refined products storage platform Zenith Energy.

Though Warburg lists the company as a 2017 investment, Zenith has been in Warburg’s portfolio since 2014. Warburg committed up to $600 million to Zenith in 2014 and in 2017 agreed to an additional equity commitment of up to $625 million, which was co-funded by fellow PE shop Kelso & Co.

Warburg reportedly had been preparing a process for the crude terminaling business in early 2020 but shelved the process at the start of the coronavirus pandemic.

Zenith would be a good candidate for a late 2022 auction given recent market dynamics, two sources familiar with the business said, though these people cautioned the company may not yet have begun generating the profits Warburg would like to see before launching a sale.

Editor’s note: The original version of this article was published earlier on The Deal’s premium subscription website. For access, log in to TheDeal.com or use the form below to request a free trial.

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