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From the Financial Post:

Blackstone Group LP, the biggest alternative-asset manager, is “scrambling” to invest more than US$10 billion in energy companies after the price of oil plunged, the firm’s president said.

“Our people are scrambling and trying to come up for air,” Tony James said on a call with reporters today discussing Blackstone’s fourth-quarter earnings. “Everything just got hammered at once. There’s clearly some very interesting values in the credit markets just buying debt at big discounts to face and getting equity-like returns.”

Oil’s 58% tumble since June has rippled through markets, erasing more than US$15 billion from the portfolios of more than a dozen private equity firms, according to data compiled by Bloomberg on 28 publicly traded energy producers. The leaders of the private equity firms also say it’s creating opportunities to invest in distressed oil producers.

High-yield bonds tied to energy companies have slumped 17% since oil prices peaked. A sustained slump in crude oil may trigger a significant increase in defaults of energy companies, Deutsche Bank AG said in a report last month.

“It will take companies 1 1/2 years to really get into a lot of trouble, but for some of the service companies it’s just going to happen very, very quickly,” Steve Schwarzman, Blackstone’s chief executive officer, said on a separate call with analysts and investors today. “You’re going to see all kinds of shakeouts over the period of a year to three years.”

Linn Energy

Blackstone and its biggest peers, including Carlyle Group LP, KKR & Co. and Apollo Global Management LLC, have raised more than US$15 billion recently for energy investing. Blackstone, in addition to closing a US$4.5 billion energy fund this month, is asking its clients for more than US$1 billion to buy bonds of troubled energy producers and to provide rescue financing, a person with knowledge of the plans said this week.

“The timing of having that capital available now really couldn’t be better,” Schwarzman, 67, said of the energy fund. “We’re accelerating our plans to raise additional capital to augment our existing large energy business” at GSO Capital Partners, the firm’s credit unit.

GSO earlier this month committed as much as US$500 million to fund oil and gas development for Linn Energy LLC. Under the five-year agreement, Blackstone would fund drilling programs at locations selected by Houston-based Linn for an 85% working interest in the wells.

Michael Nagle/Bloomberg“Our people are scrambling and trying to come up for air,” Tony James said on a call with reporters today discussing Blackstone’s fourth-quarter earnings.

Emergency Sales

“Emergency sales of assets or companies looking to either sell themselves or get an equity infusion — we are seeing all of that,” James said on the call with reporters.

James, 63, spoke while addressing Blackstone’s fourth- quarter earnings. The results, while lower than the New York- based firm’s record quarter a year earlier, exceeded analysts’ estimates, driven by sales of private equity holdings. Blackstone also reported assets under management of US$290 billion, the highest among peers.

Economic net income, a measure of earnings excluding some costs, declined 6% to US$1.45 billion, or US$1.25 cents a share, from US$1.54 billion, or US$1.35 a share, a year ago, Blackstone said. Analysts had expected earnings of 92 cents a share, according to the average of 16 estimates in a Bloomberg survey.

Blackstone fell 0.4% to US$36.58 at 12:29 p.m. in New York. The stock, which has risen 8.2% this year, closed at an all-time high on Wednesday.

Apollo, Carlyle

Blackstone is looking to invest in U.S. shale operators and international oil exploration and development while avoiding ultra deep-water drilling and heavy oil, David Foley, the firm’s head of energy deals, said last month. Shale production in the U.S. is largely resilient to lower oil prices, Foley said.

Heavy oil is a dense form of the substance that requires extra processing treatments such as heating and dilution, making it more expensive to produce.

Apollo last week registered a fund that will invest in less liquid or illiquid energy assets. The filing didn’t disclose how much the New York-based firm plans to raise.

Carlyle, based in Washington, has about US$7 billion dedicated to investing in energy companies and assets, co- founder David Rubenstein said last month. That includes a first- time international energy fund and North American energy and power funds.

KKR, run by Henry Kravis and George Roberts, is seeking as much as US$3 billion for its second special situations fund to provide financing to troubled companies, including those hurt by plunging oil prices, two people with knowledge of the plans said last week. The New York-based firm also invests in oil and gas assets through a US$2 billion energy income and growth fund.

– With assistance from David Carey in New York.