Regardless of how troubled oil and gas companies are, “if the assets are good, someone will own them,” explained David Foley, senior managing director of Blackstone Energy Partners.

He expected companies to buckle under the load of junk debt and kick off a long series of bankruptcies and assets sales at rock-bottom prices. The question was when.

That was in February. Private equity firms – the “smart money” – have been out in force for months, raising tens of billions of dollars, with the promise to their investors that they would pick up assets of all kinds on the cheap. They’ve been circling like vultures, waiting to swoop down and pick the best morsels off the carcasses soon to be strewn about the oil patch.

“The timing of having that capital available now really couldn’t be better,” Blackstone CEO Steve Schwarzman said at the time. He expected that it would take one-and-a-half years before oil and gas companies would be completely drained of cash and would get into serious trouble. But some of the service companies could run out of money and topple “very, very quickly,” he said. Over the next couple of years, there would be “all kinds of shakeouts.”

PE firms expected valuations to plunge much further as assets would hit the auction block. And so Blackstone president Tony James said that his people were “scrambling” to invest over $10 billion. They were all singing from the same page.

And PE firms continued raising money for their energy funds. A week ago, EnCap Investments in Houston closed its Energy Capital Fund X after having raised $6.5 billion. It had been “significantly oversubscribed,” the firm said; investors are clamoring for this sort of bottom-picking action by the smart money.

Blackstone, Carlyle Group, Apollo, and KKR together have raised about $30 billion for energy investments, according to Bloomberg. Walburg Pincus, Riverstone, and many others – they all have been raising billions of dollars each. The piles in dry powder grow by the day.

This is the “smart money.” The oil bust had wiped tens of billions of dollars from their energy portfolios, including KKR’s disastrous investment in Samson Resources. Someday, they’re going to get this right. That’s the idea.

Then something unexpected happened. Other investors were despairing with negative yields in Europe and ludicrously low yields in the US, and they saw stock markets at precarious heights, and nothing looked appetizing. And maybe they wondered, “What the Fed is going on?” as Ryan Litfin wrote in Money from Heaven, Path to Hell.

But these investors saw one sector where risk had – very painfully – reentered the price calculus: energy. So they held their nose and began scooping up beaten-down energy stocks and junk bonds, and prices perked up. Seeing this, companies began to issue new junk bonds and even new equity, thus funding their permanently cash-flow negative operations for a while longer. Investors gobbled it all up. The whole sector began to levitate.

“These stocks are pricing oil for $75 to $80 a barrel – something I believe the market won’t see at least until the 2nd quarter of next year at the earliest,” wrote Dan Dicker, an oil-trader veteran, on Friday in Oil & Energy Insider: And he added:

Ok, I know what is fueling a lot of this: sector rotation. Money managers are sitting at their desks looking at huge multiples in major sectors of tech and healthcare, and they’re thinking, “Well, I know one sector that has massively underperformed in 2014 and is due for a correction.” And that sector is energy. But now Conoco Philips is at close to $70 [a share], which represents almost no downside at all from its stock price in September last year when oil was trading at $90 a barrel. Sure, the majors have a bit more resilience because of their downstream assets, but really – pricing for $90 crude? No thanks.

With new money pouring in and bidding up the prices of all kinds of assets, even energy companies with their backs against the wall have begun to balk at dumping assets at fire sales.

Which leaves PE firms in a peculiar situation: assets are suddenly too expensive. And the good folks at Blackstone are no longer “scrambling” – as Tony James had put it a few months ago – to buy them.

“We thought there would be a lot to do,” Mr. James explained on Thursday. “That really hasn’t developed. We haven’t put as much new money out as we hoped or expected.”

Oil producers have been able to “raise a lot of debt and, in some cases, equity publicly at values that we wouldn’t touch,” he said. These companies ended up not having to dump their assets at fire-sale prices, and didn’t need the costly rescue money PE firms were eager to offer. “Public markets took away a lot of opportunity,” he said.

“There’s still a lot of optimism oil prices are going to bounce back, and sellers are sort of biding their time in the hopes that they don’t have to face the music,” said James. So, Blackstone has invested more in conventional and renewable power projects, he said, instead of chasing after once again overpriced and oil and gas investments.

And that’s a chilling warning for the bottom pickers in the energy sector: if PE money, which has driven the sector ever higher during  the boom, fails to jump in with both feet, the rally in asset prices may not be sustainable and may have run its course.

That is not to say that yield-desperate investors won’t get even more desperate, given the punishment the ECB has in store for them, with yields in Europe dropping further and further into the negative. Read… Strange Things Are Happening in European Bond Markets

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