The year-end 2013 Weidner Advisors Private Capital Energy Index reveals a marked slowdown in investment and fundraising activity, compared to the brisk 2012 pace reported by survey participants. In fact, participants raised less money on an annualized basis during 2013 than during any previous period surveyed. And with less money raising, there has also been less investing. However, the size of new investment commitments has increased significantly.

Capital availability: A 5% decline in initial capital available for investment was observed last year, and this stems largely from two firms that completed investing from earlier vintage funds that are now fully committed or closed. This continues a decline in available capital, first observed last summer among survey participants.

Funding: Only one survey participant noted raising fresh capital during the second half of the year, bringing the 2013 aggregate to $2.4 billion in new funds, only about 20% of the 2012 fundraising pace and the lowest rate ever recorded by the survey. However, existing and previous survey participants report active and successful fundraising already in early 2014, so this low ebb is expected to reverse itself this year.

Investments: New investment commitments fell by half from the 2012 level to 64, a dramatic slowdown from the 124 recorded in full-year 2012. The total amount of new commitments also dropped, from a $9 billion pace in 2012 to only $6.3 billion in 2013. However, the average new commitment size increased by 35% to a $98 million per deal-level, down from $111 million per deal in the first half of the year, but up significantly for the year overall. So while survey participants committed less capital during the first half, they made new commitments in larger amounts.

As capital intensity and scale within the industry grow, this is a trend that may continue among survey participants forced to concentrate on fewer portfolio companies with larger capital requirements. Several survey participants reported having made no new investments since the previous reporting period, and one was unable to report due to restrictions during a fundraising period.

Monetizations: Unlike new investments, monetizations continued a five-year uptrend, increasing 153% since the 2009 trough, and up 17% on the year. However, the average size of each monetization event fell by half, to only $25 million per deal, down from $48 million last year. This may demonstrate the acceleration of a trend that first appeared in 2012, when the survey found more portfolio company exits occurring in smaller tranches instead of as single, corporate-equity sale transactions.

This trend may reflect some changing exit dynamics impacting the industry. In particular, many firms continue to report difficulty realizing exit value from undrilled reserves. Furthermore, the natural gas price environment, while stronger than 2012, still lags in comparison to the prevailing natural gas prices in effect when many existing portfolio company investments originated in 2007–2008. As mentioned in our previous survey, gas-concentrated assets have simply proven less desirable to sell. Accordingly, monetizations have grown more piecemeal.

Preferred business plans: Respondents in 2013 continue reporting interest in midstream business plans as well as a noticeable uptick of interest in upstream businesses. While last year there was a more noticeable bias toward midstream investments, the preferred business plans in this most recent survey appear to have tipped toward the wellhead.

International investing: International investments fell significantly from 2012, but declined only modestly in size from an average of $27 million per deal last year to $23 million in 2013. As with the first half of 2013, reported second-half international investing was limited to Canada, with one U.K. investment reported for the entire year.

Conclusion: The survey illustrates a decline in capital available for investment among survey participants and a reduced level of new investment activity. Participants invested less in 2013 and they raised less new funds, too. However, the average new commitment size increased significantly against a backdrop of falling funds available and a record pace of monetizations. This combination of capital being returned to investors with the need for more capital available for larger-size deals likely portends a significant increase in new fundraising during 2014. Early reports corroborate that trend.