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Broadening portfolio, MIRA invests in California oil

Several investors this month have acquired assets in oil-rich West Texas, but Macquarie has committed up to $300m to develop longer-producing wells in California.

Unlike other investors who, in recent weeks, have spent billions in oil-rich West Texas, Macquarie Infrastructure and Real Assets agreed to a venture with California Resources Corporation to develop wells in the San Joaquin valley.

MIRA has committed $160 million off the group’s balance sheet, and up to $300 million later on, to drill oil in Central California, opting to invest in wells that operate much longer than basins in Texas and North Dakota, where production declines rapidly after a year or two of drilling, MIRA’s senior managing director Paul Beck told Infrastructure Investor.

“Properties don’t sell as much,” he said. “Companies, when they get in there, generally don’t sell.”

The deal structure dictates that MIRA will fund 100 of the development of wells. The investor will receive a 90 percent interest, and CRC, one of California’s largest oil and gas producers, gets 10 percent. When an undisclosed return threshold is met, CRC’s working interest reverts from 10 percent to 75 percent.

Beck said this is a “real property transaction” where MIRA is buying ownership of the mineral interests until that return threshold is met.

MIRA’s move follows a string of other private equity firms paying for assets in the oil and gas industry this month. Earlier this week, TPG acquired for an undisclosed amount a stake in a company providing CO2 to drillers using enhanced oil recovery, and Blackstone agreed to pay $2 billion for gas pipeline operator EagleClaw Midstream Ventures. Last week, NuStar Energy bought oil transportation company Navigator Energy from First Reserve for $1.47 billion.

Oil development is typically seen as a private equity play and outside what investors consider core infrastructure, but Beck said this deal is part of MIRA searching for new opportunities.

“It doesn’t mean we’re changing our focus from infrastructure, but we do have ambitions in MIRA to broaden our product offering, and oil and gas obviously has good potential to do that in,” he said.