By David French

(Reuters) – Energy bankers lost clients as poor returns forced many investment companies out of the U.S. Oil patch received a welcome email in January.

Elliott Management was a hedge-fund founded and managed by Paul Singer, who is well known for his activist investing. In January, Elliott Management wrote to the bankers asking them to offer opportunities to buy U.S. oil & gas acreage.

A banker at Elliott’s meeting said that they wanted to know everything about the U.S. shale opportunities.

This is not a good strategy. Many investment companies have left the sector after suffering huge losses, especially in the aftermath of the energy price collapse. Prices were most recent turned negative by concerns about the COVID-19 pandemic.

Few remaining investors are taking advantage of the energy price rise to buy assets and cash out.

Sources said that Elliott’s willingness to take on risk by considering these deals is unusual among Wall Street peers.

Although each shale basin is different, analysts estimate that Elliott would be able to make investment gains greater than 80% if oil prices remain at $100/barrel.

The bankers believe that if U.S. oil drops below $65, Elliott might lose his money. U.S. crude briefly traded at $130 following Russia’s invasion in March. Oil currently trades at $110. [O/R]

Reuters interviewed more than a dozen people in the industry about Elliott’s plans. All were subject to anonymity so that confidential discussions could be had.

Elliott declined comment.

Andrew Dittmar from Enverus Energy Consulting said that he believes the upside is significantly more than the downside.

Dittmar stated that “at these prices, sticking one dollar in the ground at an oil well or gas well in North America is one of the most rewarding things you can do because the returns are incredible.”

Enverus data for South Texas’ Eagle Ford shale Basin shows an average internal rate of return (IRR), which was about 140% at an oil price of $70/barrel and $3.50/million British thermal units (mmBtu) at the time.

U.S. currently at $8.75 per millimeter Btu [NGA/]Private equity deals that are similar to those in this industry typically return 20% as a benchmark.

Sources said Elliott seeks capital to finance management teams who purchase land for oil and gas development. Elliott bought Validus Energy for $880million to buy Eagle Ford assets of Ovintiv, (NYSE:) Inc.

Elliott Energy Capital and Pontem Energy Capital have been looking into the sale of Validus. According to sources, the price will exceed $1.5 Billion, which includes debt.

CLIMATE CONCERNS

Enverus reports that buyout firms in the U.S. petroleum and natural gas sectors sold almost three times as many assets in 2013 than they bought on a dollar per unit basis. This trend is expected to accelerate in the coming year.

Graphic: Private equity and U.S. oil & gas acreage deals – https://graphics.reuters.com/ENERGY-DEALS/ACREAGE/zdvxowqadpx/chart.png c39a538e-2c3b-4904-a8d4-6b34ebd4509e1

Private equity and hedge fund firms have often exited this sector in order to reduce their impact on climate change. Elliott also invests and pushes green policies for the firms it backs. It doesn’t disclose its investors and isn’t clear if or how it communicated with them about its entry into U.S. Oil Patch.

Singer was a supporter of politicians who expressed doubts about the severity of carbon emission. Singer, who has been a strong financial supporter for the Republican Party, also chaired the Manhattan Institute board of trustees. This think-tank promotes free markets, but Singer’s energy advocacy is heavily influenced by long-term fossil fuel use.

Although acquisitions within the sector are not new for Elliott, New York’s fund has been investing in oil companies for many years with mixed results. The fund made money by investing in oil and gas companies. Hess Corp (NYSE:) But its wagers regarding Roan Resources or Riviera Resources were lost after the collapse of both companies.

Elliott can expect to earn a high return on Birch Resources. It was created from energy assets obtained through Breitburn Energie Partners’ 2018 Chapter 11 bankruptcy.

Founded by Singer in 1977 and currently managing around $51.5 billion, Elliott has earned a reputation as one of the most formidable activist investors, going up against corporate giants include AT&T Inc (NYSE:) and SoftBank Group Corp.

Elliott’s private equity arm Evergreen Coast Capital has been pushing for more leveraged buyouts. This year, it has agreed to $10.1 billion for Nielsen Holdings, a TV rating provider (NYSE:), and $16.5 billion for Citrix Systems (NASDAQ.).