Sponsor-backed oil and gas companies are heading to market in large numbers as the standoff in Iran and rising power demand keep crude prices higher.

“A lot of the stuff that’s been held by private equity for three to five years will be cleared out,” said Stephen Trauber, managing director, chairman, and global head of Energy & Clean Technology at Moelis.

The standoff in Iran has created a roughly 14 million barrel per day supply gap, with crude prices not yet fully reflecting the physical and logistical challenges of restoring normal flows through the Strait of Hormuz or restarting shuttered Middle Eastern production, said J.P. Hanson, managing director and global head of Houlihan Lokey’s oil and gas group.

Despite a recent pullback in West Texas Intermediate crude prices after news of an agreement in principle to reopen the Strait of Hormuz, prices remain about 40% higher than when the Iran conflict began, according to data from the US Energy Information Administration.

Unlike past spikes, crude prices this time are expected to remain elevated, said Justin T. Stolte, global chair of Latham & Watkins’ energy & infrastructure group. “That matters because it creates more alignment on price expectations.”

The outlook for natural gas demand has also improved as power needs rise alongside the artificial intelligence buildout, Stolte said. The continental US is projected to require about 24 gigawatts (GW) of additional power by 2035 and about 78 GW by 2050, according to Enverus Intelligence Research (EIR).

Sponsors line up exits

The expectations that crude prices will remain elevated have helped create a more constructive backdrop for sales, particularly among sponsor-backed companies. Around USD 30bn of oil and gas assets are expected to come to market in the second half of 2026, according to Hanson.

The crude price environment likely prompted sponsor-backed companies that were already exploring a sale to accelerate their processes, said Stephen Szalkowski, founder and president of boutique energy transactions law firm Szalkowski Law.

Four sponsor exits totaling USD 7.5bn have taken place in the US oil and gas sector so far this year, nearly 80% more than in the same period of 2025 and the second-highest year-to-date volume since 2004, Mergermarket data show. The largest is the pending USD 7.5bn sale of Aethon by Ontario Teachers’ Pension Plan and RedBird Capital Partners to Mitsubishi, announced in January.

Reuters reported in March that Vitol had engaged Jefferies to explore a sale of Austin, Texas-based VTX Energy Partners, valuing the company at up to USD 3bn, including debt. Reuters also reported that Warburg Pincus and Kayne Anderson were exploring a potential sale of WildFire Energy, valuing the shale operator at more than USD 4bn including debt.

Smaller companies are also exploring sales. On 20 May, Houston-based Post Oak Energy Capital announced the sale of the assets of UpCurve Energy I and II. The sponsor launched UpCurve in 2015 with a USD 100m equity check and UpCurve II in late 2021.

This news service reported in May 2024 that UpCurve, which operates in the southern sub-Permian Delaware Basin, was evaluating strategic options.

Midland, Texas-based Hannathon has also long been viewed as a potential target after unsuccessfully attempting to sell itself several years ago in a Piper Sandler-led process, as reported by this news service.

Still, not all sponsors will pursue outright sales. Higher commodity prices are improving portfolio companies’ cash flows and hedging flexibility, allowing sponsors greater leeway to time exits, a sector lawyer said. As a result, sponsors are prioritizing capital returns to limited partners (LPs) via dividends, continuation vehicles, or asset-backed securitization (ABS) over headline-grabbing exit multiples.

Some LPs have gone so far as to ask sponsors to hold on to oil and gas portfolio companies, seeing them as their final exposure to the sector because they are unlikely to commit fresh capital, said an institutional investor managing director.

Strategics actively acquiring  

Potential buyers include mid-cap strategics seeking to replenish drilling inventories. “We’re now in harvest mode and have been for some time. Strategics need to extend inventory, which encourages them to test opportunities to acquire acreage,” Latham & Watkins’ Stolte said.

Proved developed producing (PDP) buyers are also expected to be active, bidding for companies with large portfolios of producing wells, Stolte added.

Such buyers include Stone Ridge and Diversified Energy, Andrew Dittmar, principal analyst at EIR, wrote in a 13 May note to clients.

Stone Ridge’s Flywheel Energy acquired Ovintiv’s USD 3bn Anadarko Basin assets earlier this year, according to Enverus. Diversified, meanwhile, agreed on 6 May to acquire PDP assets and undeveloped acreage from NGP Energy Capital Management-backed Camino Natural Resources for USD 1.18bn, financing the deal through a bespoke asset backed security arranged by Carlyle.

“Before ABS was widely used, sellers relied on private buyers or IPOs to create competitive tension. Now ABS provides an alternative exit with lower cost of capital expectations,” Stolte said.

Gas-weighted portfolio companies are also likely to attract international buyers seeking direct access to upstream supply, Stolte added. Mitsubishi, for example, described its proposed acquisition of Aethon as its entry into the US shale gas business. Dallas-based Aethon owns shale gas assets in the Haynesville Basin and produces about 2.1bn cubic feet per day of natural gas, equivalent to about 15 million tons per year of liquified natural gas.

PE firms could also be buyers, Hanson said, noting that about USD 40bn in private capital earmarked for upstream oil and gas investments has been raised in the last 12 months, he added.

Talented management teams that recently exited upstream businesses have yet to pursue new acquisitions, Szalkowski said. Five to 10 years ago, PE firms would back such teams to go find deals; today, sponsors generally want an acquisition identified before providing support, he added.

However, not everyone is convinced the rise in crude prices will push sponsors to transact. Only about half of the valuation of an oil and gas company is based on reserves, which are tied to future crude prices. The remainder is based on production, which is tied to current prices but largely hedged, said the institutional investor managing director.

Sponsors have extended holding periods amid a tough deal environment, and selling now only makes sense if LPs can’t continue holding oil and gas assets, the managing director added.