Private-equity fund EnCap Flatrock Midstream is investing $200 million in closely held Cardinal Midstream II LLC, five months after the firms doubled their money in a previous pipeline investment.
Cardinal, based in Dallas, is looking to build pipelines to gather natural gas, oil or petroleum liquids from wells in shale fields, with a focus on Texas, Chief Executive Officer Doug Dormer said in an interview.
In their previous deal, Cardinal developed a pipeline system in Oklahoma with a $280 million investment from EnCap Flatrock and sold it to Atlas Pipeline Partners LP (APL:US) in December for $600 million.
Cardinal’s managers may do business with some of the same oil and gas producers as they build a new system, William R. Lemmons Jr., a managing partner at San Antonio, Texas, based EnCap Flatrock said in an interview.
“A lot of those producer relationships cut across a lot of geography; treating people the right way is really important because you’re going to run into them again,” he said.
Cardinal will either hold an initial public offering for the new pipeline venture or sell it to an existing pipeline company in a few years, Dormer said.
Private equity firms invested more than $30 billion in the energy business in 2012 and another $5 trillion needs to be invested in the U.S. alone over the next 20 years to develop burgeoning shale fields, according to a February report from PricewaterhouseCoopers LLP. Pipelines and other so-called midstream systems are the least risky energy investment, the report said.
EnCap Flatrock, which manages about $3 billion in two funds, has invested in other midstream firms including Rangeland Energy LLC, which was acquired by Inergy Midstream LP (NRGM:US) for $425 million in November, and Caiman Energy LLC, which was sold to Williams Partners LP (WPZ:US) for $2.5 billion in March 2012.
Mack Matheson & Marchesoni PLLC was legal counsel to Cardinal and Thompson & Knight LLP advised EnCap Flatrock.
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