CPPIB buys into Ireland offshore gas project for $1.4 billion in latest energy acquisition

Once approved, the CPPIB’s deal for a 43 per cent interest in the Corrib gas project off Ireland’s coast would bring the pension fund’s natural resources portfolio above $6 billion

CALGARY – The Canada Pension Plan Investment Board will buy Royal Dutch Shell PLC’s interest in a natural gas project in Ireland in the pension fund’s latest deal for oil and gas assets.

The CPPIB announced the $1.4-billion deal Wednesday for a 43-per-cent interest in the Corrib gas project off Ireland’s northwest coast — a deal that, once approved, would bring the size of the pension fund’s natural resources portfolio above $6 billion.

Last month, the CPPIB announced a commitment to invest US$1 billion in a partnership with privately owned Encino Acquisition Partners to invest in U.S. oil and gas assets. The pension fund also made two significant deals in 2016 through companies it backs to purchase a pipeline in Alberta from Devon Energy Corp. for $1.4 billion and oil assets from Penn West Petroleum Ltd. for $975 million.

The CPPIB said in a release that Wednesday’s deal in Ireland furthers its strategy of investing in natural resources assets operated by third parties. For its part, Shell said in a release the deal helps put the company halfway towards its goal of divesting US$30 billion in assets following its massive US$50-billion merger with BG Group.

“In Ireland, in particular, we think the gas market is attractive and we continue to see opportunity there over the medium- to long-term,” CPPIB director and head of natural resources Avik Dey said, adding the Corrib project contributes 60 per cent of the total gas consumption for electricity in Ireland.

“We view gas as playing an important part of the energy transition story so we expect in Ireland, as in many European jurisdictions, to have an increasing dependency on natural gas and also the continued emergence of wind and solar,” Dey said.

As part of the deal, Calgary-based Vermilion Energy Inc. will increase its ownership in the Corrib gas project slightly from 18.5 per cent to 20 per cent and the company will take responsibility for operations from Shell. Norway’s Statoil ASA owns the other 37 per cent of the Corrib project.

National Bank Financial analyst Travis Wood said in a research note the deal could help make Vermilion more efficient as the company now operates 87 per cent of its production, compared with 72 per cent before.

“Although this is the first transaction that Vermilion has completed with CPPIB, there is a chance for future business development given the potential for complementary capital and operating gains,” Wood said.

“We’d much prefer to be operating our assets rather than have other parties do it,” Vermilion president and CEO Anthony Marino said, adding the company is looking for more opportunities to operate more of its production.

He said Vermilion would happily consider doing another deal with CPPIB but nothing is planned.

Marino said the Corrib gas field allowed Ireland to reduce its dependence on imported natural gas from the U.K. and that gas demand in the country is now “primarily met by domestic gas production.”

Data from BP PLC’s annual statistical review shows natural gas consumption in Ireland increased 14 per cent from 4.2 billion cubic metres in 2015 to 4.8 billion cubic metres in 2016.

“Ireland has a great energy mix,” Marino said, adding that renewable energy production is also increasing in the country and emissions are decreasing.

Asked whether the venture plans to expand output from the Corrib gas field, Dey said it’s too early to speculate and the deal announced Wednesday has not closed, but it is possible.

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