The Private Equity Play in Texas Energy: Who’s Buying and Why?

This article was originally published in Texas Lawyer. Any opinions in this article are not those of Winston & Strawn or its clients. The opinions in this article are the authors’ opinions only.

The Texas energy sector has long been a focal point for private equity (“PE”) investment, with firms pouring billions into oil, gas and, more recently, renewable energy assets. As the energy industry continues to evolve, PE firms are adapting their investment strategies to capitalize on evolving market dynamics, regulatory changes, and emerging technologies. This article examines the key trends driving PE investment in Texas’s energy sector, exploring (1) who is buying, (2) how financing structures are being employed, and (3) why investors are pivoting toward renewable energy.

PRIVATE EQUITY'S ROLE IN TEXAS ENERGY

Since the mid-1900s, PE firms have historically played a crucial role in Texas’s energy landscape, acting as a source of capital for exploration and production companies, midstream infrastructure, and oilfield services. Kevin Dowd, There Will Be Buyouts: A Brief History of Texas Oil and Private Equity, Yahoo Finance, https://finance.yahoo.com/news/buyouts-brief-history-texas-oil-050000633.html. By acquiring undervalued assets, optimizing operations, and employing sophisticated financial structuring, PE firms have been able to generate significant returns.

One of the primary drivers of PE interest in Texas energy assets is the state's vast natural resource base, particularly in the Permian Basin, the Eagle Ford, and the Haynesville Shale. Texas has more than one-fourth of the nation’s 100 largest oil fields as measured by reserves. See Texas State Energy Profile, U.S. Energy Information Administration, https://www.eia.gov/state/print.php?sid=TX. Even as the global energy market fluctuates, these prolific basins continue to attract significant investment. See, e.g., Diamondback Energy to Expand in Permian Basin with $4.09 Billion Deal, Reuters, https://www.reuters.com/markets/deals/diamondback-energy-expand-permian-with-408-billion-deal-2025-02-18/. Further, the relatively business-friendly regulatory environment in Texas has made it an attractive jurisdiction for dealmaking, with PE firms facing lower tax burdens and fewer regulatory hurdles than in other oil-producing states. 

TRENDS IN ENERGY ACQUISITIONS

Over the past decade, PE firms have increasingly focused on acquiring distressed assets and restructuring companies burdened by debt. Following the oil price downturn of 2014-2016 and the COVID-19 pandemic’s demand shock in 2020, many small and mid-sized energy companies struggled to maintain financial stability. PE firms seized these opportunities, acquiring assets at discounted valuations, restructuring capital expenditures, and streamlining operations to increase profitability. See, e.g., Energy Sector Sees Dramatic Increase in Private Equity Funding, Hart Energy, https://www.hartenergy.com/exclusives/energy-sector-sees-dramatic-increase-private-equity-funding-211150.

In recent years, PE-backed consolidation has increased in the oil and gas industry. Irina Slav, Consolidation Wave in U.S. Oil and Gas is Big Boon for Private Equity, OilPrice.Com, https://oilprice.com/Energy/Energy-General/Consolidation-Wave-in-US-Oil-and-Gas-is-Big-Boon-for-Private-Equity.html. Rather than flipping assets quickly, PE firms are focusing on long-term strategies, forming larger, more resilient companies capable of withstanding market volatility. Private Equity Buyout Funds Show Longest Holding Periods in 2 Decades, S&P Global, https://www.spglobal.com/market-intelligence/en/news-insights/articles/2023/11/private-equity-buyout-funds-show-longest-holding-periods-in-2-decades-79033309. This trend aligns with broader industry shifts, where scale and efficiency are critical to competing in a market increasingly shaped by environmental, social, and governance (“ESG”) concerns.

FINANCING STRUCTURES, EXIT STRATEGIES

PE firms typically rely on a combination of equity and debt financing. Many firms use leverage to enhance returns, often partnering with banks and institutional investors to secure favorable lending terms. Structured finance mechanisms, including asset-backed loans, mezzanine financing, and royalty interests, have become increasingly popular tools in energy-focused PE deals.

As financing structures in the Texas energy sector have evolved, so too have exit strategies. Traditional exits through initial public offerings have become less frequent due to market volatility and investor skepticism about fossil fuel companies. Instead, PE firms are increasingly pursuing mergers and acquisitions, selling their energy assets to larger, publicly traded companies or other PE-backed portfolio firms. Some firms are exploring alternative exits, such as forming publicly traded partnerships or leveraging special purpose acquisition companies.

SLIGHT PIVOT FROM OIL & GAS TO RENEWABLE ENERGY

While oil and gas remain the dominant investment targets for PE in Texas, there has been a notable shift toward renewable energy. With growing pressure from investors, regulators, and consumers to reduce carbon emissions, PE firms are diversifying their portfolios to include wind, solar, battery storage, and carbon capture projects. In 2022, PE investment in renewable energy and clean technology surged to a record-high $26 billion. The Critical Role Private Equity Plays in America’s Energy Transition, American Investment Council, https://www.investmentcouncil.org/wp-content/uploads/2023/04/2023_AIC_Energy_Report_0418.pdf.

Texas has emerged as a leader in renewable energy, ranking as the nation’s top producer of wind power and a rapidly growing player in solar energy. Texas Wind, Solar Production Surges, AXIOS Dallas, https://www.axios.com/local/dallas/2024/04/04/texas-wind-solar-renewable-energy-production. The state’s deregulated electricity market, ample land availability, and favorable wind and solar conditions make it an attractive destination for renewable energy investments. PE firms are capitalizing on these factors by funding utility-scale projects, acquiring stakes in established renewable developers, and financing innovative clean energy technologies. In accordance with this slight shift to renewable energy investments, PE firms have:

• Sought investments in firms that focus on battery storage solutions, which are critical for integrating renewable energy into the grid. Specifically, PE-backed firms are investing in large-scale battery storage projects to enhance grid reliability and facilitate the shift away from fossil fuels.
• Supported carbon capture and utilization initiatives, recognizing the potential for regulatory incentives and future revenue streams in a low-carbon economy. Snehal Shah, Why Private Equity is Crowding Into Carbon Capture, New Private Markets, https://www.newprivatemarkets.com/why-private-equity-is-crowding-into-carbon-capture/.
• Explored and expanded on investments in offshore windfarms, particularly in the Northeast. In 2022, PE firms won an 83,976-acre offshore wind lease area with a $645 million bid for areas off the New Jersey and New York coastlines. Last year, Global Infrastructure Management LLC took over a 50% interest in two offshore wind farms near New York and Rhode Island. Allison Good, Private Equity Wades Deeper Into US Offshore Wind Investments, S&P Global, https://www.spglobal.com/market-intelligence/en/news-insights/articles/2024/3/private-equity-wades-deeper-into-us-offshore-wind-investments-80663941.

This shift is driven not only by market trends but also federal and state policies promoting clean energy investments. The Inflation Reduction Act of 2022, Pub. L. 117-169, 136 Stat. 1818 (2022), which introduced significant tax credits for renewable energy development, is one example of the incentivization of PE participation. Many firms are adopting a hybrid investment approach, maintaining traditional energy assets while expanding into renewables to balance risk and opportunity.

LONG-TERM OUTLOOK FOR PRIVATE EQUITY IN TEXAS ENERGY

As the Texas energy market continues to evolve, PE firms will play a pivotal role in shaping its future. While traditional oil and gas investments remain a key focus, the growing emphasis on ESG considerations and the global energy transition are pushing firms to adopt a more balanced approach.

Looking ahead, PE investments in Texas energy will likely be characterized by a blend of hydrocarbons and renewables, strategic consolidation, and an increasing reliance on innovative financial structures. Firms that successfully navigate the shifting landscape by embracing sustainability, technological advancements, and market-driven efficiencies will be well-positioned to generate long-term value in an increasingly complex energy ecosystem.

CONCLUSION

PE firms remain deeply entrenched in Texas’s energy sector, driving investment, consolidation, and innovation across oil, gas, and renewable energy markets. The evolving landscape presents both challenges and opportunities, requiring firms to balance traditional energy investments with the growing demand for sustainable solutions. As PE continues to adapt, its influence on the Texas energy industry will remain a defining force for years to come.

Reprinted with permission from the March 21, 2025 edition of Texas Lawyer © 2025 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.