The National Pension Service (NPS) has acquired an American shale oil and gas transport company for US$1.75 billion.
According to industry sources, the NPS signed a contract in May via Morgan Stanley’s North Haven Infrastructure Partners II fund to take over the subsidiary of Brazos Midstream Holdings in the Delaware River Basin.
Brazos is a gas gathering and processing (G&P) company transporting shale oil and gas from the Delaware River Basin and the Permian Basin in Texas. Gas gathering means collecting natural gas and transporting it through pipelines while processing means to remove impurities from the natural gas and make it suitable for end users.
SK is planning to invest US$250 million in Brazos, too. In other words, the size of the contract signed in May amounts to US$2 billion. The actual investment of the NPS is estimated at one trillion won, given the US$950 million acquisition financing from Jefferies Finance LLC and the Royal Bank of Canada.
This investment is expected to help the NPS raise its profitability, which is below 1% now. The annual yield of Colonial Pipeline, in which the NPS made an investment in 2010, is estimated at 6% to 7%. From 2009 to 2013, 32 American natural gas pipeline companies’ average ROE was 14%. In addition, the BEP is about US$50 when it comes to shale gas, which is approximately 40% lower than that of crude oil from deep sea floors. Internal and external environments for stable profits are already prepared with the international oil price expected to move between US$50 and US$70 in the long term and crude oil and gas exports soaring in the present government of the U.S.
In May, SK said that the investment has a low risk because the fixed-fee contract unaffected by oil and gas price fluctuations accounts for 80% of sales. Furthermore, Brazos has an EBITDA of 50% or so along with long-term contracts effective for more than 10 years. The investment from the NPS is also meaningful in that its CIO position has been vacant for more than one year.