Energy & Financial
Renewal, Solar & Wind35%
Oil & Gas40%
Medici Firma Energy
The renewable energy market is the fastest growing generation segment Globally. It is an attractive investment opportunity, which is estimated to require significant capital investment over the medium term.
In response to these market drivers our renewable energy investment Theme is to focus on the most efficient technologies and best resource sites, requiring the least regulatory support and resulting in the lowest cost for the consumer. We invest in industrial scale to lower intrinsic costs and create strategic value.
Medici Firma has pursued a four-sector approach within the energy and power industry, targeting investments in the exploration & production, midstream, energy services and power & coal sectors. The Firm believes that a strategic allocation across the energy industry’s main sectors results in superior risk-adjusted returns for Limited Partners.
Exploration & Production
The exploration of energy natural resources (oil, natural gas, coal) has evolved considerably since the earliest days of the industry in the late 1800s.
Despite this evolution, the basic structure of the energy industry has remained intact. The terms “upstream,” “midstream” and “downstream” are generally used to describe the operations of oil, natural gas and coal companies pursuant to a “stream” analogy from source of product (upstream) to end use (downstream). Traditionally, many industry participants exhibited varying degrees of vertical integration. However, in recent years, the focus on vertical integration has lessened as each industry segment has become increasingly competitive and distinct as a business.
Exploration and production activities for all energy commodities are capital-intensive and require considerable engineering and operating expertise. Historically, many upstream oil and natural gas companies have focused on growth in revenues and reserves, with little regard for returns on capital, as public market investors often focused more on growth measures when evaluating financial performance. The upstream segment of the industry is now facing new challenges to produce increasing returns on capital invested. We believe this is driving significant industry consolidation and rationalization as producers intensify their efforts in core areas and rationalize non-core assets.
Midstream energy activities include transportation of products and logistics associated with managing supply and demand across geographic regions and over time.
Midstream companies transport crude oil, natural gas, refined products, coal and other commodities through pipeline systems and shipping and trucking of both feedstock and end-use products. Their activities also include storing various commodities, significant hedging and price risk management products and services and marketing (primarily wholesale) for virtually all types of feedstock and end-use products.
Midstream assets typically require significant capital initially, but ongoing capital requirements are modest relative to many other segments. Midstream companies typically generate the majority of their revenues, earnings and returns through tariff agreements with shippers. Such agreements typically call for a fee based on the volumes shipped. As a result, midstream economics generally are significantly less exposed to commodity price volatility. Many midstream companies also engage in merchant and risk management activities pursuant to which they will often take principal positions in specific commodities and assume any related price exposure.
The energy services segment includes companies that provide services or manufacture products for use in all aspects of the energy sector globally, including the exploration for and development, production, processing and transportation of oil and natural gas, as well as the generation of power and other energy applications. Medici Firma’s existing and prior investments in the services segment include companies that manufacture valves and flow control equipment, storage tanks and downhole tools, and provide hydraulic fracturing services, among many others.
The ongoing shift to oil and gas extraction from unconventional on-shore and off-shore reservoirs will continue to require increasingly specialized technology, equipment and services. These trends create opportunities to acquire, build, grow and consolidate niche manufacturers and service providers.
Power & Coal
The majority of power generation involves the conversion of raw materials feedstocks, primarily coal, natural gas and crude oil derivatives, into electricity.
Most electric generation assets typically are capital intensive, requiring significant initial investment and, very often, considerable ongoing expenditures. Electric power producers generate revenues, earnings and returns by selling the electricity they produce into the power grid, or in some cases directly to end users, at values greater than the combined cost of feedstock and processing.
At present, most major electricity markets are either emerging from their first down-cycle since deregulation or are peaking at the top of a boom cycle. Medici Firma believes that this situation, combined with ongoing regulatory divestitures, corporate mergers and acquisition activity and industry financial restructuring, will provide ample opportunities to purchase quality generation assets at value with attractive returns.