It is increasingly clear that the energy transition is well underway, with renewables substituting for oil and gas.

Projections for oil and gas demand present a bleak picture for the industry: the International Energy Agency (IEA) now foresees global demand for oil, gas, and coal all peaking by the end of this decade. This seismic shift in energy consumption will have significant consequences for energy investors, across all asset classes.

This report is primarily written for private equity investors – both General Partners (GPs) and Limited Partners (LPs) – and highlights the unique risks which they face from continued investment in Upstream, alongside those facing listed equity investors.

It builds on existing Carbon Tracker methodologies and analysis to better equip private equity investors with the tools to evaluate the viability of their investments, and:

• Demonstrates the demand substitution impact of an accelerating energy transition on project viability.
• Outlines the strategies open to private equity upstream portfolio companies and highlights the relevant key risks under different paces of transition.
• Reviews the risks to which GPs and LPs are uniquely exposed via upstream investments.
• Highlights strategies for GPs and LPs to mitigate the chance of potential lower returns from transition-induced value erosion.

The report then uses the UK and Norway’s North Sea territories, which has been a hotbed of private equity activity in recent years, to present a case study of how these risks could materialise for 10 private equity backed companies in the basin.

• Quantifies the impacts of a slow and moderate paced transition to private equity backed companies’ future cash flows, investments, and production.
• Identifies the key considerations for policymakers and financial regulators.
• Throws a spotlight on private equity backed companies’ role in new licensing.