Tuesday, August 21, 2018

OMERS's Huge Stake in a Texas Pipeline?

The Canadian Press reports, Pension fund for Ontario city employees invests $1.87 billion in Texas pipeline:
The Ontario Municipal Employees Retirement System has an agreement to pay $1.87 billion for a 50 per cent stake in BridgeTex Pipeline Company, LLC, which owns a pipeline system that carries crude oil from West Texas to Houston.

The two companies that currently own BridgeTex will remain minority shareholders, with Plains All American retaining a 20 per cent interest and Magellan Midstream retaining a 30 per cent interest.

OMERS is one of Canada's largest defined benefit pension funds, with net assets of more than $95 billion.

The BridgeTex pipeline currently has capacity to carry 400,000 barrels per day from Colorado City, where it collects crude oil from two pipeline systems owned by Plains, and delivers it to Magellan facilities in Houston.

The companies say capacity on the BridgeTex pipeline will be increased by 10 per cent to 440,000 barrels per day by early 2019.

Michael Ryder, a senior managing director for OMERS Infrastructure, said the BridgeTex investment is consistent with a strategy of building significant, long-term investment partnerships.

"We're very excited to join Plains All American and Magellan as co-owners and look forward to working together to support future operations of the BridgeTex pipeline," Ryder said.
OMERS put out a press release, OMERS Infrastructure Announces Investment in BridgeTex:
OMERS Infrastructure Management, Inc., the infrastructure investment manager of OMERS, today announced a definitive agreement to acquire a 50 percent interest in BridgeTex Pipeline Company, LLC (“BridgeTex”) for $1.438 billion. BridgeTex is the owner of the BridgeTex pipeline, a key provider of crude oil transportation from Colorado City in West Texas to refineries in Houston and Texas City as well as for marine export through the Houston Ship Channel.

Upon completion of the transaction OMERS, the defined benefit pension plan for municipal employees in Ontario, Canada, will become the largest shareholder of BridgeTex, with affiliates of both Plains All American Pipeline, L.P. (“Plains All American”) and Magellan Midstream Partners, L.P. (“Magellan”) retaining 20% and 30% owned interests respectively and an affiliate of Magellan continuing to act as operator of the pipeline.

“OMERS investment in BridgeTex is consistent with our strategy of building significant, long-term investment partnerships with leading corporations, and marks our re-entry into the attractive U.S. midstream energy sector,” said Michael Ryder, Senior Managing Director, Americas, for OMERS Infrastructure. “We’re very excited to join Plains All American and Magellan as co-owners and look forward to working together to support future operations of the BridgeTex pipeline."

“Around the world, OMERS Infrastructure is singularly focused on owning vital, large-scale infrastructure assets that will best position our portfolio to deliver strong, consistent returns to OMERS members for many years to come,” said Ralph Berg, OMERS Infrastructure’s Executive Vice President and Global Head. “BridgeTex is yet another example of this strategy and brings another high-performing energy asset into our growing North American infrastructure portfolio.”

BridgeTex will be OMERS third major investment in U.S. energy infrastructure in 2018. In March, OMERS Infrastructure executed agreements to acquire Leeward Renewable Energy, LLC, a leading U.S. wind power project owner, operator and developer. Earlier this month, OMERS also announced the planned acquisition of a 24% stake in Puget Holdings LLC, owner of Puget Sound Energy, Washington State’s oldest regulated energy utility providing electric and natural gas service to millions of customers in Western Washington.

Globally, the OMERS Infrastructure portfolio continues to expand with approximately $17 billion of assets under management in high quality investments in transportation, energy and critical social infrastructure worldwide at the end of 2017.

About OMERS and OMERS Infrastructure

OMERS Infrastructure invests globally in infrastructure assets on behalf of OMERS, the defined benefit pension plan for Ontario’s municipal employees. Investments are aimed at steady returns to help deliver strong and sustainable pensions to OMERS members. OMERS Infrastructure’s diversified portfolio of large-scale infrastructure assets exhibits stability and strong cash flows, in sectors including energy, transportation and government-regulated services.

OMERS has employees in Toronto and other major cities across North America, the U.K., Europe, Asia and Australia. OMERS is one of Canada's largest defined benefit pension funds, with net assets of more than C$95 billion. Visit www.omersprivatemarkets.com for more information.
I read more on BridgeTex Pipeline Company on the website of Shawcor, a world leading integrated energy services company that helps keep construction projects and operations running smoothly and to specification through proprietary, technology-based products, services and solutions organized into four distinct groups:
The 300,000 barrel-per-day BridgeTex Pipeline begins in Colorado City, Texas, and transports Permian crude oil to the refining market along the Houston Gulf Coast. The integrity of these critical assets has been assured from the beginning, thanks to Shawcor’s Integrity Management services.

Our experts deployed conventional radiography services, x-raying each girth weld along the entire 450-mile, 20" pipeline. With the local support of multiple Shawcor service branches throughout Texas, we were able to execute our inspection services rapidly, supporting the successful installation of the pipeline.

Focusing on safety, quality and service, the skilled technicians with our Shawcor Integrity Management group provided a thorough inspection of the BridgeTex Pipeline, complying with all necessary regulations for increased pipeline safety at the onset of operations.
And people worry that pipelines are very dangerous! I trust pipelines a lot more than any other way of transporting crude.

Anyway, this is a huge deal for OMERS. Almost $2 billion of a total $95 billion in assets is going into this deal so I'm sure they conducted thorough due diligence.

OMERS is taking a 50% stake which is huge but Plains All American and Magellan Midstream will control the other 50% and OMERS needs them as partners to run operations at BridgeTex Pipeline.

Pipelines are great investments over the long run because they provide good yields. Investors often make the mistake of equating pipelines to energy companies but the price of crude doesn't really impact pipelines.

As shown below, the Alerian MLP ETF (AMLP) is up 10% YTD and it offers an attractive yield of 7.66%:


And here are the charts for Magellan Midstream Partners (MMP) and Plains All American (PAA) over the last five years:



Both companies offer attractive yields, as do all pipelines.

But high-yield stocks got hit earlier this year when there was a tantrum over the bond teddy bear market and long bond yields rose. They now seem to be making a comeback as defensive stocks are taking leadership in this market.

As far as BridgeTex pipeline, earlier ths year, Bryan Sims of Reuters reported, Crude volumes on BridgeTex pipeline seen up 16 percent this year:
Magellan Midstream Partners LP expects crude volumes this year to increase 16 percent on the BridgeTex pipeline to accommodate shipments of more oil from the Permian Basin of West Texas and New Mexico, the largest U.S. oilfield, to exporters and refineries in the Houston Gulf Coast area, executives said.

The pipeline, which moves crude oil from Midland and Colorado City, Texas, to East Houston, Texas, is expected to average about 315,000 barrels-per-day (bpd), up from about 270,000 bpd all of last year, executives said on the company’s earning call on Thursday.

The pipeline was recently expanded from 300,000 bpd to a capacity of 400,000 bpd. Magellan is expanding the pipeline system again, for a new capacity of about 440,000 bpd, expected to be operational in early 2019.

The company recently set new committed shipping rates to move crude on the line after it completed a supplemental open season and secured additional volume commitments for the new expansion capacity.
All in all, this is another solid investment for OMERS Infrastructure Management. They have a lot of experience in pipelines and they know these investments very well, partnering up with the right partners.

Last week, I discussed how AIMCo, BCI and OMERS invested in Puget Holdings [no LLC], the parent company of Puget Sound Energy Inc., a regulated utility company in Washington state.

The fact that OMERS is investing in utilities and pipelines tells you a lot about where they think this market is headed and why they want to focus on stable long-term cash flows.

Below, Jim Cramer sits down with Magellan Midstream Partners Chairman and CEO Mike Mears, who pushes back on recent weakness in the pipeline stocks (April 2018).

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