Wednesday, November 16, 2011

Caisse Acquires Big Stake in Major Pipeline

Canadian Business reports, Caisse de depot buys 16.55 per cent stake in US pipeline for US$850 million:
Canada's largest pension fund manager, Caisse de depot et placement du Quebec, said Wednesday that it's buying a 16.55-per cent interest in a U.S. oil pipeline for US$850 million.

The Caisse said it will acquire Colonial Pipeline Co. and Colonial Ventures LLC from ConocoPhillips (NYSE:COP).

The Colonial Pipeline is considered the largest refined petroleum products pipeline in the United States. It extends more than 8,800 kilometres between the Gulf of Mexico and the Northeastern U.S. and transports the equivalent of 2.3 million barrels a day.

"The Caisse is always interested in quality assets that yield stable, long-term returns," said Normand Provost, executive vice-president of private equity and chief operations officer.

"This particular investment targets an infrastructure project in a regulated industry that we know well through our investments in Gaz Metro, Interconnector, Enbridge and Fluxys," he said in a news release.

The Caisse said it expects to close the transaction in the first quarter of 2012.

The transaction is part of a larger sale of oil and gas assets by ConocoPhillips on Wednesday designed to focus the company on its most profitable businesses.

Analyst Philip Adams of U.S.-based Gimme Credit said ConocoPhillips is in the process of "skinnying down" its assets.

Adams said he couldn't speculate why the Caisse made the pipeline purchase but said it should provide advantages.

"If somebody was looking for an asset that would provide steady income, a little bit of growth, a good market position, a regulated rate of return, or tariff rate of return and would lend itself to distribution a high percentage of its cash flow, that might be an attractive investment for that type of a fund," Adams said from Chicago.

ConocoPhillips also sold its 50 per cent stake in the Seaway crude pipeline between Oklahoma and Texas to Calgary-based Enbridge Inc. (TSX:ENB) for $1.15 billion. ConocoPhillips announced earlier this year that it would split itself into two separate companies — one that would explore for and produce petroleum and another that would refine and market it.

The Caisse de depot et placement du Quebec manages funds for public and private pension and insurance plans, with some $151.7 billion in net assets under management as of Dec. 31, 2010.

In a related article, The Montreal Gazette reports, Caisse de dépôt pays ConocoPhillips $850M for stake in pipeline:

Pension fund manager the Caisse de dépôt et placement du Québec has snapped up a 16.5-per-cent stake in the Colonial Pipeline Company and Colonial Ventures from ConocoPhillips for $850 million.

The Colonial Pipeline is the largest refined petroleum products pipeline in the United States. It extends more than 8,800 kilometres between the Gulf of Mexico and the Northeastern U.S. and transports the equivalent of 2.3 million barrels per day.

"The Caisse is always interested in quality assets that yield stable, long-term returns," Normand Provost, executive vice-president of private equity and the chief operations officer at the Caisse, said in a staement. "This particular investment targets an infrastructure project in a regulated industry that we know well through our investments in Gaz Métro, Interconnector, Enbridge and Fluxys."

ConocoPhillips has also agreed to sell its 50-per-cent stake in Seaway Crude Pipeline Company to a unit of Calgary-based Enbridge Inc for $1.15 billion. For Conoco Phillips, the two separate transactions are part of its $15-20 billion program to divest non-core pipeline assets.

In a related development, Enbridge has agreed with its partner Enterprise Products Partner to reverse the flow of the recently acquired Seaway Crude Pipeline to transport oil from Cushing, Okla., to the U.S. Gulf Coast.

"The Seaway Pipeline reversal provides an early opportunity to offer Gulf Coast access to mid-continent producers and other crude oil shippers," said Patrick Daniel, president and chief executive of Enbridge. "A Seaway reversal will provide capacity to move secure, reliable supply to Texas Gulf Coast refineries, offsetting supplies of imported crude."

Enbridge and Enterprise said they expect the reversed Seaway pipeline will be fully contracted. The partners anticipate conducting an open season to validate shipper support for an expansion of Seaway, through looping or twinning.

So what do I think of this latest move by the Caisse? I think it makes a lot more sense investing in a major pipeline than paying 2&20 to 'consolidate' your private equity fund relationships.

Having said this, investing in pipelines carries its own set of regulatory, political and reputation risks. President Obama's decision to delay TransCanada's Keystone XL pipeline until after the 2012 US elections is the latest example of pipelines and politics. Even Hollywood actors protested, as Mark Ruffalo joined actors Darryl Hannah and Robert Redford in a stand against the pipeline:

"We want to stop it," he said of the $7-billion project that will carry oil from Alberta to Texas. "This is a huge attack on our climate."

Ruffalo also said the economic benefits of the pipeline are suspect.

"The job numbers are wildly inflated," he said, noting that proponents of the project had cited 250,000 jobs created to start with but that number has declined to 6,000. "The only growing job sector is renewable energy."

With U.S. President Barack Obama within a couple of months of making a decision on the pipeline, Ruffalo said it is time for Obama to make good on his election promise that "this will be the generation to end the tyranny of oil."

"If he's not going to make those promises happen, we'll go on without him," the actor said, adding: "Change is in the air today."

In an interview from Calgary on Question Period, TransCanada Corp. CEO and president Russ Girling said the debate over the pipeline has been hijacked by celebrity protesters who have transformed it into a philosophical debate between the use of fossil fuels and alternative energies.

"The way they have introduced that debate is by using fear that if you let this project occur you will be introducing the biggest carbon bomb in the world and that couldn't be farther from the truth," he said.

"They have used celebrities to get that into the living room of the average American."

When asked about a possible change in the route, Girling said that would scuttle the pipeline by sending it back to square one. And he added that is unnecessary because environmental studies have shown the present pipeline plan has "no material impact on resources along the route."

He said the pipeline makes "infinite sense" and he warned that stopping the pipeline would increase greenhouse gas emissions because of all the tankers that would be needed to transport oil from Alberta to Texas.

And Bloomberg now reports that the US State Department withheld information on internal discussions about TransCanada Corp. (TRP)’s proposed Keystone XL pipeline across six U.S. states, according to an environmental group.

The department “heavily redacted” or withheld internal e- mails on discussions over the $7 billion project, according to Friends of the Earth in Washington. Documents that have been released demonstrate “inappropriately cozy” relationships between department officials and TransCanada, the group said.

The State Department’s inspector general said on Nov. 4 it will examine the agency’s handling of the project. The watchdog said it was “initiating a special review” of the department’s environmental study and a pending determination of whether the project is in the national interest.

“We are not satisfied with the responses State has provided so far,” Nick Berning, a spokesman for the group, said yesterday in an interview. “Our attorneys are going to continue to work to obtain the missing documents.”

The State Department, which intended to reach a decision on the project by the end of the year, said Nov. 10 it was delaying action until early 2013 to consider alternative routes. The department has jurisdiction over the project because the pipeline crosses an international border.

TransCanada’s proposed pipeline would cover 1,661 miles (2,673 kilometers) across Montana, South Dakota, Nebraska, Kansas, Oklahoma and Texas. Critics say the project, carrying as many as 700,000 barrels a day of heavy crude from Alberta to Gulf Coast refineries, threatens water supplies in Nebraska and will worsen global warming.

Below, Hollywood stars Daryl Hanna and Robert Redford speak up on why they joined Tar Sands Action lending their voices against the Keystone XL tar sands pipeline. Investing in an existing pipeline is less of a "hot button issue," but note to Caisse, next time invest in solar farms, preferably in Greece, or just plain old farmland which is now more precious than gold.

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