Is it a stream or is it a sea? They seem to have gotten their hydrological imagery mixed up. But no, the “sea” in question is a literal sea, though the “stream” in question is a mere bit of imagery, so clichéd as such that no one sees it as a metaphor any more. The “they” in question are the lawyers at the international law firm White & Case LLP. A team there led by David Baker1 have just put out a thoughtful commentary on “investment in oil and gas midstream infrastructure.” This report focuses on the North Sea, an area where the “midstream” assets have, they say, “not historically been seen as particularly liquid” – there’s that hydrology again. Semantics aside … deal making within this space has become more common in recent years. In March 2016, for example, North Sea Midstream Partners, an affiliate of ArcLight Capital Partners, acquired 100% of Total’s interest in the Frigg UK pipeline (a line which stretches 362 kilometers, about 225 miles) and the St. Fergus gas terminal, in Aberdeenshire, Scotland. At the same time, NSMP acquired a 67% interest in the Shetland Islands Regional Gas Export System pipeline. Every Deal is Unique Going back a bit further: in 2014, Antin Infrastructure Partners bought out BP’s equity in the Central Area Transmission System, bringing Antin’s equity stake in that system up from 62.78% to 99%. There are of course at least two sides to every deal. From BP’s point of view, the sale of CATS contributed to a re-focusing of the company’s resources and efforts in the region, including the completion of major projects in the central North Sea and the Shetland areas. From the point of view of Antin, CATS itself looks like a great business. CATS includes an onshore gas processing terminal, at Teesside, a fixed-riser platform, and It transports roughly 13% of the UK’s domestic gas production. More such assets may come onto the market soon, as BP contemplates the sale of its Forties Pipeline System, which includes the Kinneil Terminal oil and gas processing plants. These plants were commissioned in 1975, and roughly 40% of the total UK oil production passes this way. Such deal making in regard to the infrastructure of the North Sea is a welcome development for the government of the UK. It was only last year that the government created a new regulator, the Oil & Gas Authority, largely with the goal of promoting hydrocarbon recovery, in large part by facilitating shared development of and access to infrastructure by the various corporate parties working in the region. As Baker at al. observe in the White & Case report, smaller entities at work in the region “may not individually have the means to invest in necessary infrastructure on a standalone basis.” Fickleness and Suspicion There are of course risks. White & Case observe that investors in the Gassled network, a similar share-the-infrastructure effort led by the government of Norway, suffered from that government’s fickleness on the matter of tariffs. An analogous scenario would be “the worst possible outcome for midstream financial investors” in the U.K. The White & Case report comes to a non-conclusion conclusion. It “remains to be seen” how the independent ownership of North Sea infrastructure assets will shake itself out in the near future, especially against a backdrop of declining production. Nonetheless, this report deserves some attention, if only because it helps confirm a growing suspicion in some quarters that there is a definite place to which the heads of institutional investors, especially perhaps pension managers, will turn in the years to come in order to resolve their own liability-based squeeze: and that industrial infrastructure is that place. Pensions have the time horizon necessary to bear the illiquidity on the one hand, and infrastructure is in great demand, it can produce the returns to resolve that squeeze, on the other. The mediation of the movement of money from pensions to North Sea pipelines and the like may well be the Next Big Thing. 1 Baker in particular has a London-based practice and is an authority on energy infrastructure and project finance, and a member of the UK Energy Lawyers’ Group.
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