FILE PHOTO: A pump jack operates in the Permian Basin oil and natural gas production area near Odessa, Texas, U.S., February 10, 2019. Picture taken February 10, 2019. REUTERS/Nick Oxford/File Photo

By Shariq Khan, David French and Arathy Somasekhar

NEW YORK/HOUSTON, Dec 11 (Reuters) - Carnelian Energy Capital is moving to sell six of its North American oil and gas production investments, multiple people familiar with the matter said, at a time of mounting pressure on private equity firms to increase exits and return cash to investors.

The moves, representing most of the Carnelian-backed companies that produce oil and gas, and about 40% of its overall investments, have raised eyebrows among industry participants because buyout firms traditionally space out sale efforts to avoid exhausting buyer demand.

Carnelian is either actively marketing or preparing to auction the assets in the coming weeks, sources said.

Industry participants also noted the U.S. deals market into which Carnelian is selling is subdued compared to recent, albeit record-breaking, years. This is partly due to uncertainty over the outlook for crude prices, which has pushed listed energy producers to prioritize cost-cutting over expansion.

Other sources, though, said Carnelian is looking to shed a mix of long-held positions at a time when assets with inventory are in short supply, and stakes in natural gas producers, which are drawing increased interest as the fuel gains traction in powering AI infrastructure.

The assets range in value from a few hundred million dollars to more than $1 billion, according to the sources. Neither Carnelian nor the companies disclose production figures, but the producers are considered small by global standards.

The sources cautioned there was no guarantee Carnelian would divest all the assets. They spoke on condition of anonymity to discuss confidential deliberations.

Carnelian declined to comment.

DEALS TO BE DONE

Houston, Texas-based Carnelian is a mid-market energy investor headed by Tomas Ackerman and Daniel Goodman. Its last flagship fund, the $975 million Carnelian Energy Capital V, closed in February 2024. In October, it announced a $600 million fund closure dedicated to Canadian energy investments.

Carnelian is in advanced talks to sell two portfolio companies in which it invested in 2020 and 2022: Canadian oil producer Hawthorne Energy, and Veritas Permian III, which it co-owns with fellow buyout firm Old Ironsides Energy, six sources said. Old Ironsides is also selling its Veritas stake, one of the sources added.

Natural gas-focused Azul Resources, in which Carnelian invested in 2021, has agreed to sell some Haynesville assets to Apex Natural Gas, which is backed by hedge fund Citadel, Bloomberg reported last week.

Additionally, Carnelian has been marketing for sale in recent weeks Grit Oil and Gas II, six sources said. Grit operates in South Texas' Eagle Ford formation and is one of Carnelian's longest-held investments, dating back to 2019.

Carnelian plans to market early next year Zavanna Energy and Parallax Energy, eight sources said, with Moelis hired to sell Zavanna, a producer focused on North Dakota's Bakken basin, five of them added.

Both Zavanna and Canadian producer Parallax only received initial commitments from Carnelian last year, according to public statements. Private equity firms typically hold an investment for upwards of three years to allow its value to grow before they exit.

The six Carnelian portfolio companies and Old Ironsides did not respond to requests for comment. Citadel and Moelis declined to comment.

Carnelian's second, third and fourth funds were performing well versus the industry's traditional benchmark, delivering a net internal rate of return of between 17.2% and 20.8% at the end of 2024, according to the Florida State Board of Administration.

The timing of exits from private equity investments generally depends on various factors, such as favorable market conditions, the success of an investment, buyer interest and whether the firm plans to raise a new fund in the near future. Increasingly, buyout firms are also facing pressure from investors to speed up the pace of exits.

(Reporting by Shariq Khan and David French in New York, Arathy Somasekhar in Houston;Editing by Liz Hampton and Rod Nickel)