Citadel has held talks to buy U.S. oil production assets, as the hedge fund and commodities trader considers expanding further into owning physical assets, five people familiar with the matter said.
The firm founded by Ken Griffin was among the bidders for WildFire Energy, which was put up for sale earlier this year by buyout firms Warburg Pincus and Kayne Anderson, according to four of the sources. Magnolia Oil & Gas (MGY.N), opens new tab ultimately won the auction, agreeing to buy the operator in the Eagle Ford shale in South Texas for $4.06 billion.
The WildFire bid was among a handful of engagements that Citadel has had in recent weeks with private equity firms that own exploration and production companies about buying oil-weighted assets, the sources said. They asked not to be identified because the matter is private.
As crude prices spike and tensions in the Middle East disrupt global energy markets, U.S. oil and natural gas assets have drawn heightened buyer interest because they can deliver oil without passing through chokepoints such as the Strait of Hormuz.
While uncommon, hedge funds and trading houses that have traditionally traded commodities on exchanges have also been expanding their ownership of physical assets, often to complement their trading businesses.
Citadel and Warburg declined comment. Kayne Anderson did not respond to a comment request.
PLATFORM ASSET
Citadel is already a major trader in oil, natural gas, power and other commodities.
Owning physical production assets can serve as a natural hedge for financial firms that trade commodities through futures and derivatives, because the physical barrels they produce tend to gain value in the same market conditions — such as supply disruptions or geopolitical shocks — that can generate losses on their paper trading positions.
Oil prices have been persistently elevated this year, with U.S. crude touching a six-week high on Thursday amid escalating Middle East tension. That has benefited oil producers, with many recording their best earnings in years in the second quarter. Industry executives have also warned that tight supply could take months to ease, even if hostilities were to end immediately.