Big Oil is undergoing a financial transformation, and it's all about pipelines. Major players in the private equity world are increasingly investing in the infrastructure of the oil and gas sector, particularly in the Middle East, as companies like Saudi Aramco and the United Arab Emirates open their pipeline networks to foreign capital. But what does this mean for the future of energy investments? Let's dive in.
Private equity firms are now setting their sights on the infrastructure assets of international oil giants. The goal? To provide these companies with much-needed funds, which they can then reinvest in oil and gas production. This shift is happening because of a few key factors: lower oil prices, and a reluctance from public-market investors, despite changing attitudes toward environmental, social, and governance (ESG) issues. Private equity offers a lifeline for these major players, allowing them to raise cash by selling off parts of their pipeline and storage assets.
This trend started in the Middle East but is now expanding to international oil majors. They need capital to maintain dividends and stock buybacks, especially with oil prices around $60 per barrel, and to fund further investments in boosting oil and gas production.
Investors are actively encouraging companies like ExxonMobil, BP, TotalEnergies, and Eni to consider selling stakes in their pipeline and storage assets to private equity groups. This is a new way for Big Oil to monetize their infrastructure assets, without relying on equity-market investors.
At a recent closed-door meeting during the energy industry's ADIPEC gathering, private equity teams met with executives from Exxon, BP, TotalEnergies, and Eni. They suggested that these companies could offload more of their infrastructure assets, according to the Financial Times. One participant at the meeting bluntly told the majors, "You guys need to rethink how you think about capital." Private equity giants are more willing to invest in Big Oil than the equity markets, which are "not as receptive" to the oil and gas industry, the participant added. The advice was clear: take the available capital and reinvest it in your core business.
But here's where it gets controversial...
Some deals have already been made. For example, Apollo-managed funds partnered with BP to invest approximately $1 billion, acquiring a 25% non-controlling stake in BP Pipelines (TANAP) Ltd. This subsidiary holds BP’s 12% interest in TANAP, which operates the pipeline carrying natural gas from Azerbaijan through Turkey. While BP is monetizing its interest in TANAP, it will remain the controlling shareholder, maintaining a long-term commercial and strategic interest in the pipeline. Prior to that, Apollo and BP agreed on a deal where Apollo would buy a non-controlling stake in BP Pipelines TAP Limited, which holds a 20% share in the Trans Adriatic Pipeline AG (TAP) for around $1 billion.
Shell also completed the sale of its 16.125% interest in the company owning the Colonial Pipeline in the U.S. to Brookfield Infrastructure Partners L.P. and its partners. Other major oil companies have yet to announce similar significant deals, but the trend, which was initiated by Middle Eastern national oil companies, is gaining momentum.
Investors are clearly flocking to Middle East energy infrastructure. In 2020, Abu Dhabi’s ADNOC made a $20.7 billion deal with Global Infrastructure Partners (GIP) and Brookfield, selling a 49% stake in ADNOC Gas Pipeline Assets LLC. This year, KKR bought a minority stake in the same company. KKR was also part of the first-ever energy infrastructure deal for a Middle Eastern NOC, acquiring a minority stake in ADNOC’s oil pipelines business in 2019. Last year, KKR and BlackRock sold their 40% stake in ADNOC Oil Pipelines to Lunate, an Abu Dhabi-based investment manager.
Saudi Arabia is also looking to monetize Aramco’s infrastructure through deals with global funds. Earlier this year, Saudi Aramco signed an $11 billion lease and leaseback deal for its Jafurah gas processing facilities with a consortium led by GIP, part of BlackRock. Jafurah is crucial for Aramco's plans to increase gas production capacity by 60% between 2021 and 2030.
Infrastructure deals have been thriving in the Middle East. Last year, Bapco Energies of Bahrain sold a minority stake in the Saudi Bahrain Pipeline Company (SBPC) to a BlackRock fund. Kuwait’s state firm, Kuwait Petroleum Corporation (KPC), is considering raising up to $7 billion by leasing part of its pipeline network, mirroring Aramco’s deal, according to Bloomberg.
And this is the part most people miss... The trend of global infrastructure funds investing in energy infrastructure began in the Middle East but is now spreading to Big Oil. This presents a win-win scenario: international majors gain capital outside of traditional markets, while infrastructure funds secure long-term, reliable returns on their investments.
What do you think about this shift in investment strategy? Do you see it as a positive move for the oil and gas industry, or are there potential downsides? Share your thoughts in the comments below!
