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Infrastructure investors including BlackRock, Brookfield and Apollo are courting the leading oil and gas companies, sensing an opportunity as the sector grapples with lower prices and a lack of enthusiasm from public-market investors.
At a closed-door meeting ahead of this month’s Adipec energy conference in Abu Dhabi, the heads of ExxonMobil, TotalEnergies, Eni and BP were urged to offload more of their networks of pipelines, storage terminals and other assets to raise cash to be deployed elsewhere in their operations.
“You guys need to rethink how you think about capital,” one participant told the majors, arguing that equity markets were “not as receptive” to the industry.
“You’re trading at four to seven times earnings multiples. What’s wrong with selling your infrastructure assets for 10 to 12 times?” the person asked. “Take the cheap capital and reinvest it in your core business.”
Saudi Aramco is among those to embrace the trend, completing an $11bn sale and leaseback deal with BlackRock-owned Global Infrastructure Partners in August for the gas network of its Jafurah project. It is weighing further disposals, according to one person familiar with the situation.
“Why sit on such a vast and lucrative asset base?” said the person. “A lot of the major sovereign wealth funds and private funds were frustrated they did not get a piece of the Jafurah pie and the deals team has been flooded with offers. So they were told to pitch and come formally with ideas.”
Aramco has not determined how much it may sell, according to the person, but such transactions have the potential to raise billions of dollars to support its balance sheet and fund capital spending.
Abu Dhabi moved in 2020 with a $20.7bn pipeline agreement with GIP, Brookfield and the sovereign wealth fund of Singapore, while Oman, Bahrain and Kuwait have all either completed or are considering similar transactions.
Such deals signal a change of approach for state oil companies that have not traditionally sought to open up their businesses to foreign capital.
David Waring, head of energy in Emea at Evercore, said the Aramco deal had “sparked a real wave of interest” from other state oil groups and infrastructure funds seeking a “piece of the action”.
Fossil fuel infrastructure has become more attractive for private-capital groups as expectations grow that the green energy transition will take longer than previously forecast.
Energy groups’ pipelines and other assets, which come with steady revenues backed by long-term contracts, are appealing to funds backed by pools of insurance money that are seeking to deploy large amounts of capital and secure reliable returns.
“They have captive insurance money, which is long-term and cheap,” said the head of the deals team at one oil company. “They sit in the middle and take 2 per cent to 3 per cent.”
The big international oil companies (IOCs), by contrast, have been more cautious, although they have started doing deals as they seek to balance their growth plans against shareholder demands for tight balance sheets and a focus on dividends and share buybacks.
This year, Shell offloaded its interest in the US Colonial pipeline to Brookfield in a deal that valued the asset at $9bn, while BP sold a stake in the Trans-Anatolian network to Apollo for $1bn.
Waring suggested the influx of money from infrastructure funds into the state-run oil companies would trigger a reaction from the IOCs, which have often relied on more conventional financing.
“Can the IOCs afford to operate within the confines that the equity market imposes, without considering more innovative solutions?” he asked.