Haddington Ventures closes on $182m midstream energy fund

The midstream energy industry, which focuses primarily on processing, storing, transporting and marketing crude oil and natural gas products, will be the target of Houston, Texas-based private equity firm Haddington Ventures’ new $182 million (€145 million) private equity fund. The firm announced the closing of the new fund, Haddington Energy Partners III, late Tuesday.

The new Haddington Ventures fund will seek equity investment opportunities in the midstream sector in the $20 million to $50 million range with total enterprise value of $100 million to $200 million, and will also consider $2 million to $5 million investments with high growth potential. The fund will be used to finance incremental operating improvements or expansions in existing facilities, and build new facilities.

The $25 billion North American midstream energy sector acts as the middleman between the so-called upstream market—the production and exploration sector—and the downstream market, or the end users of the energy products, which include utilities and their consumers. Haddington, which has raised more than $320 million in capital since it formed in 1998, is once again banking on the midstream industry with its new fund, as it believes the sector has generally fewer risks than the other sectors—which require actually discovering the oil or gas, which is always a risky proposition, or may be more vulnerable to oil and gas price fluctuation. Little wonder that the sector generates $3 billion to $5 billion in new investment each year.

All the principals at Haddington came from midstream energy backgrounds, and thus are focused on future trends in that sector. John A. Strom, managing director at Haddington, says that two recent developments make the sector full of investment opportunity. “There are significant additions and modifications needed to the existing midstream infrastructure on account of a couple of macroevents,” he says. The first: the introduction of increasing amounts of liquefied natural gas (LNG) into the United States, which changes the supply patterns relative to the existing infrastructure.

The second event can be directly linked to higher oil and gas prices, which are giving rise to more and more producers developing unconventional resource bases, such as oil sands and coal-bed methane. “And by definition, most of those have no existing midstream infrastructure, because they hadn’t heretofore been developed,” says Strom. And that yet-to-be-built infrastructure would be on top of the sector’s 1.2 million miles of pipeline, 525 processing plants, 120 storage operators, and 28 market centers already scattered throughout North America. “An attractive place to be, from our standpoint,” says Strom. “An opportunity-rich environment.”