Billion-dollar baby

In April, First Reserve inked a joint venture agreement with Petroleos Mexicanos (PEMEX) to invest $1 billion in energy infrastructure opportunities in Mexico. The deal represents one of the larger joint ventures for the infrastructure group at First Reserve, and provides a unique set up given that Petroleos Mexicanos is Mexico’s state owned energy company.

PEMEX is said to be aggressively pursuing investment partnerships in order to ease the effects of planned budget cuts at the company this year as a result of lower energy prices.

“This is the first major outside investment for PEMEX since the reform was put into place,” Mark Florian, managing director of First Reserve’s Energy Infrastructure Fund, tells PEI. “They have a large need for external and internal capital to rebuild and support the energy infrastructure in the company.”

Both companies plan to target infrastructure investments throughout the country and will combine financing, structuring, and operational options for each deal.

One investment is already underway. First Reserve and PEMEX will invest in the Los Ramones pipeline, a project which will create 744 kilometres of natural gas pipeline, with full commercial operations expected in mid-2016. That deal also includes an investment interest from BlackRock – a first for BlackRock. The total investment is valued at approximately $900 million – or 45 percent of the project.

Both PEMEX and First Reserve say they will be looking for other “large scale” infrastructure opportunities like Los Ramones. “Our billion dollars in capital will come alongside PEMEX for other investments like this,” Florian says. “We see Los Ramones as a great, but first, investment for us. We’re in active dialogue with PEMEX on a variety of investments.”

First Reserve has been on an investment spree since closing its latest fund in September of last year. That fund – First Reserve’s thirteenth – closed on $3.4 billion. The fund is smaller than previous funds and also missed a reduced target of $5 billion, but the firm doesn’t appear to be slowing down. First Reserve also closed an energy infrastructure fund in June of last year on $2.4 billion – the firm’s second. Investments like Los Ramones will fall under Florian’s leadership and come from the infrastructure vehicle.

“We want to be strategic partners with great corporates or as happens with PEMEX, the national oil company of Mexico,” Florian adds. PEMEX is the 10th largest oil producer worldwide, and a unique partner for a private equity firm given its state-backed status.

“PEMEX is looking for external capital for projects it is executing – mostly pipeline opportunities, like Los Ramones, but others as well including cogeneration and refining. PEMEX will have control in terms of operations, and if we invest we want a structure that protects us from a variety of eventualities. So it is likely we will have the equivalent of control of 50 percent or more of the investment side of those assets.”