One of Canada’s largest pension funds is paying US$1.4-billion for a 50-per-cent interest in a pipeline that moves oil from the Permian region of Texas, in its third big U.S. energy acquisition this year.
Ontario Municipal Employees Retirement System (OMERS), a defined benefit plan for 500,000 members from school boards, emergency services and local agencies, is buying the stake in the BridgeTex pipeline from Plains All-American Pipeline LP and Magellan Midstream Partners LP, both of which will remain as partners.
BridgeTex moves up to 400,000 barrels of oil a day to the Houston and Texas City refining areas from Colorado City in the western part of the state. The pipeline is being expanded by 40,000 barrels a day in a project expected to be completed early next year.
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Production from the Permian Basin, known as the world’s hottest oil shale play, is on pace to more than double to 5.4-million barrels a day by 2023. That’s more than the current output from any single OPEC country except for Saudi Arabia, according to analysis firm IHS Markit. Surging production has already created a transport capacity crunch, although a handful of new projects are expected to start up by the end of 2019.
The deal adds to the $17-billion in global assets under the umbrella of OMERS’s infrastructure arm. It follows the pension fund’s acquisitions of U.S. wind-power company Leeward Renewable Energy LLC in March and of a 24-per-cent interest in Puget Holdings LLC, owner of Washington State utility Puget Sound Energy, earlier this month. The pension fund has said it targets assets that provide essential services and generate steady cash flow, and which have large barriers to entry.
The acquisition also aligns with the fund’s strategy of forming partnerships with leading corporations, said Michael Ryder, Senior Managing Director, Americas for OMERS Infrastructure. Additionally, it gives Plains and Magellan cash to fund other projects while allowing them to keep interests in BridgeTex.
It marks the latest big energy purchase for a Canadian pension fund amid a global race for assets that generate steady cash. The competition has sent deal prices higher. This year, Wolf Midstream, which is backed by the Canada Pension Plan Investment Board (CPPIB), acquired the 50 per cent of the Access oil pipeline that it did not already own from MEG Energy Corp. for $1.5-billion. Three weeks ago, Wolf announced a deal with Enhance Energy to build a 240-kilometre carbon pipeline in Alberta, with CPPIB committing up to $305-million to the project.
OMERS is buying 30 per cent of BridgeTex from Plains and the remainder of the stake from Magellan. The deal is expected to close in the fourth quarter.