Buyout firms put energy infrastructure in pipeline

By Jonathan Keehner and Michael Erman

NEW YORK (Reuters) - Private equity firms are snapping up energy infrastructure assets like pipelines and storage facilities, which are some of the few buyouts likely to attract financing as credit markets remain in a deep freeze.

Firms keen to put capital to work say their ability to spend immediately on infrastructure makes them ideal buyers when energy companies jettison assets, as with First Reserve's recent deal to buy a 20 million-barrel storage terminal off the Florida coast -- the Caribbean's largest.

"These are assets that the majors need to access and influence but may not want to completely own or take the risk of building out," First Reserve Managing Director Thomas Sikorski said. "If we can position ourselves in the middle of that, we start acting truly strategic."

Opportunities may be picking up. Cheniere Energy LNG.A recently said it was looking at strategic options for its Sabine Pass LNG receiving terminal in Louisiana, near the Gulf of Mexico. And First Reserve, an energy-focused private equity firm, agreed to join with Blackstone Group (BX.N: Quote, Profile, Research, Stock Buzz) and Europe's Petroplus Holdings AG (PPHN.VX: Quote, Profile, Research, Stock Buzz) in a $2 billion deal to buy U.S. oil refineries.

Such assets may let private equity take advantage of the red-hot energy sector without the risk tied to exploration and production (E&P). Also, cash flow from long-term contracts could help them tap today's ultra-tight credit markets.

"From the point of view of private equity, they're a steady stream of income," said Dino Barajas, a partner at law firm Paul Hastings who works on energy and power deals. "You don't really care if someone's using your pipeline -- if they've contracted for the capacity, there's your check in the mail."

JUST LOGISTICS

Private equity firms envision compiling a network of infrastructure assets worth more than the separate components.