Mark Wiseman, chief executive officer of Canada Pension Plan Investment Board (CPPIB).Kevin Van Paassen/Bloomberg
Canada Pension Plan Investment Board is creating an investment group focused on midstream energy infrastructure in a partnership with a crew of experienced operators.
The country's largest pension fund said Wednesday that it would form a vehicle to invest more than $1-billion in the sector in the Western Canadian Sedimentary Basin.
CPPIB launched the initiative alongside Wolf Infrastructure Inc., a company recently started by five former executives of private Calgary-based energy infrastructure firm Mistral Energy Inc. The Wolf team has previously worked with private equity backers.
In this new venture, Wolf will search for opportunities to acquire and grow midstream assets – the equipment that transports oil, gas and natural gas liquids from producers to refiners. Midstream assets can also include processing, storage and other supporting services in the production process. CPPIB and Wolf say they will look for midstream assets that include "processing facilities and gathering systems, pipelines, hydrocarbon storage and terminals."
As oil prices tumbled over the past year, some executives of large Canadian investors said they saw a new opportunity to invest in the depressed market. Mark Wiseman, chief executive officer of CPPIB, said at the time that he saw "a lot of value in the Western Canadian basin."
The midstream space appeals to CPPIB as there's a growing requirement for infrastructure, especially in the regions of Montney, Duvernay and Deep Basin, said Avik Dey, head of natural resources at CPPIB.
And having deep pockets helps. "We think that a vehicle that is well funded, that can go to oil and gas companies and say 'we have the scale to build the assets,' is an important marker as we build a business development pipeline and a suite of projects," said Mr. Dey, commenting on the size of the fund.
Energy exploration and production companies have been looking to sell these assets as a way to raise outside capital to invest in their operations and wells.
"Historically, the oil and gas companies owned this infrastructure and now there's an opportunity for third-party entities like Wolf [and CPPIB] to own and manage and operate those assets on behalf of the oil companies, freeing up capital for them to put into the drill bit or into well themselves," Mr. Dey said.
Distressed commodity markets and capital markets in the energy space haven't dampened investor demand for these assets. Other private equity groups in Canada and the U.S. have also highlighted midstream assets as an area of interest in recent months.
Tidewater Midstream and Infrastructure Ltd. said it would take a stake in a gas plant and related pipelines in June. And late last year, Encana Corp. made waves by selling gas pipeline and processing assets in Western Canada to Veresen Inc. and KKR & Co. LP.
The stability of CPPIB as a recognized, long-term investor will be appealing to energy producers, said Gord Salahor, CEO of Wolf, in a statement. "Developing assets under a well-funded long-term vehicle will offer midstream customers greater certainty as they grow their operations," he said.
Under the arrangement, CPPIB will fund acquisitions and development and the Wolf management team will operate and manage the assets. The two sides took six months to settle on the partnership.