KKR targets Canadian energy with new JV

The private equity firm will invest $609m in the new joint venture it is launching in SemGroup to build out midstream services in Alberta.

New York-based KKR and SemGroup, headquartered in Tulsa, Oklahoma, announced a partnership to build out oil and gas transportation services in Western Canada’s Montney Basin and will acquire Meritage Midstream for $449 million to seed the new venture.

KKR committed $385 million to take a 49 percent stake in SemCAMS Midstream ULC, which will be based in Calgary, and the firm is putting up an additional $224 million to purchase perpetual preferred equity in the company. The preferred equity will pay quarterly dividends at an annual rate of 8.75 percent, according to a statement.

SemGroup is contributing $860 million in existing assets to the venture in exchange for a 51 percent stake and $463 million in cash proceeds, the statement said.

In addition to the equity investments, SemCAMS has taken on a $262 million senior secured amortising term loan facility and a $336 million senior secured revolving credit facility, underwritten by lenders including TD Securities, CIBC Capital Markets and BMO Capital Markets. The credit facilities will be used in part to finance the Meritage acquisition, fund future projects and meet current capital requirements.

In their joint statement, KKR and SemGroup noted their venture has “an aggressive growth plan” for Canada.

“We have been an active investor in the Canadian energy space for the last decade and are big believers in the Montney as a growing, low-cost natural gas play that is relevant on a global scale,” said Brandon Freiman, KKR’s head of North American infrastructure.

For KKR, the investment is a sizeable chunk out of its third and most recent infrastructure fund, though it is not clear whether all or a portion of the $609 million is coming from that vehicle. The firm closed KKR Global Infrastructure Investors III in September on $7.4 billion, making it the largest infrastructure fund raised in 2018.

The SemCAMS deal is the first the firm has announced from its latest fund. However, last June, a source told Infrastructure Investor the firm had begun deploying fund III when it acquired a 49.99 percent stake in more than 10,000 telecom towers owned and managed  by French company SFR, a subsidiary of Dutch telecom giant Altice.

Earlier this month, KKR announced a 50 percent acquisition of aircraft asset manager Altavair for $1 billion. That deal was made by KKR’s infrastructure and credit businesses on a 50-50 basis, but the firm did not specify which funds were used to finance the acquisition.