Oil & Gas Industry: Upstream Private Equity Deal Structures adopting Tokenization and Smart Contracts

With over USD 83.5 billion in M&A activity across North American oil and gas industry of which over 54% represents investments in the oil and gas Upstream sector.

With a growing investment appetite and the industry’s growing need for capital (considering the $416 billion in upstream capital spending) we asked PermianChain’s Independent Director, And CEO of Battiest Energy, Michael Pickens about his view on the industry’s investment trends. “ Upstream Private Equity (PE) deals are now being referred to as “Loan to Own” — usually an 85–15% split, but only if the PE fund received 3x the investment in 5 years”

Mr. Pickens continued by saying that “PE structure does not consider favorable terms for the managers of the assets, because PE firms usually structure the deals so that they have a high probability of owning 100% of the assets if targets are missed”.

Such structures cause managers, lease owners and operators to face the risk of being acquired or divested without much of a choice missing out on the upside.

The PermianChain business model could bring a competitive edge with the Permian Token (XPR) currently taking a disruptive approach to PE. This innovation is expected to compliment the current PE model on mutually favorable terms to asset owners and managers. As the Permian Token’s Net Asset Value (NAV) shows growth and consistent sustainable level of liquidity we can expect to see quality deal flow pouring into the asset-base of the PermianChain platform and in turn allowing Exit facilities and dividends that will attract liquidity to the sector from accredited and professional investors —we see institutionalization as a key step forward.

For over 159 years investment bankers, placement agents and broker/dealers have had the upper-hand on deals in the industry. Since the early 1860s the oil and gas upstream investment industry has become an antiquated one. The industry is now growing old and inefficient from the many land issues, legal challenges, extensive geological research, engineering & production, trading, transportation, etc. — Such inefficiencies are valid use-cases where smart contracts could apply. The coded frameworks, governance and contractual obligations that can be integrated into Smart Contracts allow automated functions to address inefficiencies that plagued the industry for hundreds of years.

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