Target Information

Antin Infrastructure Partners, a private equity firm specializing in infrastructure investments, has reached an agreement to sell Kellas Midstream to BlackRock’s Global Energy & Power Infrastructure Funds (GEPIF III) and GIC, a prominent global institutional investor, in a collaborative venture. Kellas Midstream is responsible for owning and operating essential gas infrastructure in the UK Central and Southern North Sea, including the Central Area Transmission System (CATS), the Esmond Transportation System (ETS), and the Humber Gathering System (HGS).

The Central Area Transmission System (CATS) functions as a significant gas transportation and processing infrastructure that channels gas from the Central North Sea to a reception terminal at Teesside, North East England. The Esmond Transportation System (ETS) is a crucial subsea pipeline linking multiple producing fields to the Bacton gas terminal on the North Sea coast. The Humber Gathering System (HGS) is an innovative greenfield project designed to support the development of the Tolmount gas field in the Southern North Sea.

Industry Overview

The UK energy sector is a dynamic and evolving landscape, particularly distinguished by its shift towards cleaner and more sustainable energy sources. As the country works towards achieving its climate goals, there has been a growing emphasis on natural gas as a bridging fuel that supports the transition to a lower carbon economy. Investments in gas infrastructure are pivotal, as they facilitate the reliable supply of energy while supporting the gradual decrease of carbon emissions from the energy mix.

The midstream segment of the energy industry, which includes pipelines and processing facilities, plays an essential role in connecting energy producers with consumers. With the UK's renewed focus on energy security and the need for infrastructure investments, the demand for reliable gas transportation systems has surged. Kellas Midstream stands out as a key player in this sector, particularly with its strategic assets located in prime gas-producing regions.

In recent years, the UK's Natural Gas market has shown resilience despite challenges presented by fluctuating prices and international competition. The increasing need for infrastructure upgrades and expansions, along with the introduction of new technologies, positions players like Kellas Midstream favorably for future growth opportunities. The ongoing transition towards renewable sources further underscores the necessity for diversified energy networks capable of ensuring supply stability.

Rationale Behind the Deal

This transaction reflects Antin's confidence in Kellas Midstream’s growth trajectory and operating performance over the past five years. The firm's strategic focus on enhancing operational efficiencies and health and safety standards has contributed to a formidable market presence. By transitioning to institutional ownership under BlackRock and GIC, the aim is to leverage their financial strength and vast industry experience to propel Kellas Midstream into its next growth phase.

Furthermore, both BlackRock and GIC recognize the growth potential in Kellas Midstream’s portfolio and aim to support continued investments in its infrastructure and operational capabilities. The partnership is expected to reinforce the company’s position in the market while enhancing its service offerings in the North Sea region.

Investor Information

BlackRock is a leading investment management firm committed to enhancing financial security for individuals and institutions by providing innovative solutions tailored to meet diverse investment goals. With approximately $6.96 trillion in assets under management as of September 30, 2019, the firm has a dedicated focus on real assets through its Global Energy & Power Infrastructure Funds, which seek to capitalize on opportunities within the energy and power sectors. BlackRock’s extensive experience in managing infrastructure investments aligns well with the operational strengths of Kellas Midstream.

GIC, established in 1981 to manage Singapore’s foreign reserves, is a distinguished global investment firm adept at investing across various asset classes, including infrastructure. GIC’s strategy emphasizes direct investments in operating assets with predictable cash flows and protection against inflation. This partnership with BlackRock and Kellas Midstream signifies GIC's commitment to investing in vital midstream infrastructure and directly contributes to the enhancement of the energy landscape in the UK.

View of Dealert

The investment by BlackRock and GIC in Kellas Midstream appears to be a strategic decision underpinned by the growing importance of gas infrastructure amidst the energy transition. Kellas Midstream has demonstrated a strong operational track record and a well-defined growth strategy, indicating a potential for sustained value creation. The emphasis on safety and efficiency, coupled with the existing relationships with major gas fields, further strengthens its market position.

Moreover, the increasing institutional interest in energy investments highlights a growing recognition of the midstream segment as a valuable asset class. The backing by two respected institutional investors provides Kellas Midstream with the necessary resources to expand its operations and optimize its existing assets, making it a compelling case for future growth.

While the energy sector faces uncertainties, particularly due to policy changes and market volatility, the foundation laid by Antin and the subsequent stewardship from BlackRock and GIC could lead to robust opportunities for Kellas Midstream. The deal could ultimately foster innovation and enable the company to adapt to the evolving market landscape, promoting a sustainable and secure energy future in the UK.

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