The time is right for private-capital providers to find opportunities for investment outside the U.S., but many challenges remain, according to panelists at IPAA's recent Private Capital Conference held in Houston.

"There are many challenges to international energy investment, but we think there are also many opportunities," said panelist Todd Swanson, partner with Barclays Natural Resources Investments (BNRI). BNRI is a division of Barclays Capital, the investment-banking division of Barclays Bank Plc.

Swanson listed language, culture, politics, corruption, taxes and the lack of adequate infrastructure as challenges. "These complexities mean good teams are much harder to find," he said, but noted that Colombian private-equity-backed companies have done very well when compared to other Latin American companies.

He advised international companies seeking private-equity capital to ensure they can explain what makes them different and less risky. Also, they should invest their own capital and be "gripped in the numbers" to show specific forecasted revenue streams.

"If you can't articulate how returns are generated, that's a problem," he said. He encouraged E&Ps to begin building capital relationships as early as possible—such as when the project is still in the concept stage.

During the second half of 2009, Barclays invested in London-based Central Europe Oil Co. Ltd., an international company focused on field redevelopment in central and eastern Europe.

Private-capital firm Lime Rock Partners is also in the international investment space, and has placed some $3.8 billion in more than 33 countries. The company targets small- to mid-cap E&Ps, and prefers to take a majority ownership position when possible.

"We see the energy capital moving from Houston to Dubai," asserted J. McLane, managing director. "It's an inevitable truth for resource capture around the world. The resources are really in the international markets now, and so is the demand. So we are seeing a significant shift in the center of gravity in energy."

Overseas opportunities are generally less competitive and valuations are lower, especially for marginal fields, he said. The challenge is to overcome "creeping nationalism and bureaucracy" and geographical barriers.

Recently, Lime Rock invested in Canadian oil-sands player Laricina Energy Ltd., field-redeveloper Expert Petroleum SRL, headquartered in Romania, and Storm Ventures Inc., a North Sea- and Tunisia-focused explorer.

Kurt Talbot, managing director for TCW Asset Management Co., observed that from 2003 to 2007, institutional investors seemed to flock to E&P private equity. "Now, institutions are reassessing their investments. There is nervousness about North American gas because investors are not sure if shale gas is a game-changer or not.

"However, we see bearish sentiment that should help attract capital to non-U.S. opportunities. Oil is relatively more attractive, but known, proven oil reserves are expensive to produce or are in bad zip codes," he said.

Many investors typically shy away from international energy developments due to a general aversion to unknown risk, but TCW makes decisions based on the assets, he said. "It's like making duck soup. First, you need a duck."

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