Elliott Investments Puts $500 Million Bet on Gas Producer Supported by Quantum Technology

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Elliott Bets $500 Million on Gas Producer Backed by Quantum © Provided by The Wall Street Journal

Multistrategy investor Elliott Investment Management has committed more than $500 million to a continuation fund established by private-equity firm Quantum Capital Group, aimed at extending its ownership of natural-gas producer HG Energy. This move signals Elliott’s confidence that the value of HG Energy will increase as natural gas prices rebound, according to sources familiar with the situation.

Quantum Capital Group, with a focus on energy investments, is seeking to raise $1.6 billion for the fund dedicated to acquiring HG Energy out of previous investment vehicles. These include Quantum Energy Partners VI, a flagship fund valued at $4.45 billion, along with investments from private-equity firm Andros Capital Partners and Quantum executives. This deal values HG Energy at an enterprise value of $1.9 billion, as indicated by two individuals briefed on the matter.

Elliott Investment Management, led by investor Paul Singer, has a history of strategic investments in the energy sector. Notably, the firm injected $1 billion into oil refiner Phillips 66 late last year, advocating for a refocusing of the company’s operations on energy. This approach mirrors Elliott’s past engagement with Marathon Petroleum in 2019.

In a common practice associated with manager-led continuation vehicles, existing investors in Quantum’s funds have the opportunity to transition their HG Energy stakes into the new investment vehicle. Quantum, headquartered in Houston, was previously known as Quantum Energy Partners.

Quantum Capital Group’s advisers for the continuation deal reportedly include investment bank Jefferies Financial Group, according to sources familiar with the matter.

Continuation funds, a common tool in private equity, allow managers to retain assets that they are unable or unwilling to divest as their investment vehicles near maturity, while fund investors seek liquidity. Quantum initially invested in HG Energy in 2017, coinciding with the company’s acquisition of gas fields in the Appalachian Basin from Noble Energy for approximately $1.13 billion.

The U.S. oil-and-gas sector has witnessed rapid consolidation, prompting publicly traded companies to acquire private equity-backed producers amid fierce competition for coveted assets. Last year, the total value of announced or completed deals involving oil-and-gas producers in the U.S. exceeded $190 billion, with a record $144 billion in the final three months alone, according to Enverus.

Quantum has capitalized on this trend, achieving multiple exits in recent years, including the sale of natural-gas producers such as Rockcliff Energy and Tug Hill. Despite robust deal activity, capital constraints for operational investments and fluctuations in commodity prices have posed challenges, with asset values remaining below historical levels.

The mild winter in the U.S. contributed to a decline in gas futures prices last month, reaching inflation-adjusted lows not seen since trading began on the New York Mercantile Exchange in 1990. Nevertheless, private-equity firms remain optimistic about gas’s role in ensuring electricity supply stability amid increasing reliance on renewable energy sources and growing LNG exports.

The surge in interest rates since early 2022 has fueled private-equity interest in continuation funds, offering a strategy to retain assets during market recovery. Manager-led secondary deals, including continuation-fund transactions, maintained significant activity, totaling approximately $52 billion last year, according to Jefferies data.

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