Blackstone's new credit fund will invest in undervalued oil and gas assets
Blackstone's new credit fund will invest in undervalued oil and gas assets.Blackstone Group

US private equity major Blackstone Group is reportedly raising its first energy-focused credit fund that will invest in troubled energy assets.

GSO Capital Partners, Blackstone's credit investment arm, has tapped several existing investors to speedily raise between $500m (£331m, €442m) and $1bn to invest in traded debt securities in the energy sector, Reuters reported.

The new GSO fund will mainly seek to buy the traded debt of energy firms rather than lend to them directly. It will aim to balance its portfolio by investing in lower-risk, lower-return debt securities, the report added.

Pursued by the news agency, a Blackstone spokesman refused to comment.

The move suggests that Blackstone is betting that the bonds of some exploration and production firms, which profited from North America's shale oil and gas boom, are now undervalued or could be in the near future in the wake of the oil rout.

Weak crude prices have pressurised energy firms with weak balance sheets or high production costs, and have weighed on sales for services companies that sell everything from sand to drilling rigs to temporary housing.

GSO's new corporate energy credit fund is the latest in a series of such funds being put together post the oil rout. Last week, Apollo Global Management said it was raising a new fund to invest in less liquid, or illiquid, credit products in the energy businesses.

GSO already has a dedicated energy team that invests in the sector with capital from general credit funds. Earlier in the month, GSO's rescue-lending fund and related vehicles agreed to commit up to $500m for five years to fund the drilling programme of US-based oil and natural gas explorer LINN Energy.

In addition, GSO and US-based Franklin Square Capital Partners run FS Energy & Power Fund, a business development company that invests in the debt and equity securities of private US power and energy firms.

Buyout firms raised $17.5bn the worldover in 2014 for private equity funds targeting natural resources, according to data from market research firm Preqin.