Blackstone doubles down on shale boom lasting with Harvest deal

Bloomberg

Blackstone Group LP’s reach for $10 billion in energy assets is the firm’s latest bet that the US shale boom is just hitting its stride.
The world’s largest alternative-asset manager agreed to buy Harvest Fund Advisors for an undisclosed amount, adding the firm’s 18-member team led by Eric Conklin to an investment empire that spans private equity, real estate, credit and hedge funds.
The private equity firm has made a series of wagers premised on the US shale revolution having room to run. This year Blackstone has snatched up assets including a share in a $2.3 billion purchase of acreage in the Eagle Ford shale basin in Texas, a $2 billion deal for pipeline company EagleClaw Midstream Ventures LLC and a $1.57 billion stake in Energy Transfer Partners LP’s Rover gas pipeline.
“The value of that pipe in the ground, most often as long as you’re in the right areas, isn’t decreasing in value — that’s increasing in value every day,” Conklin said in a phone interview. “We’re certainly in the early innings when it comes to pricing the space efficiently.”
Harvest, founded in 2005, invests in US midstream assets such as pipelines and export terminals through master limited partnerships. Like real estate investment trusts and business development companies, MLPs pass their federal tax duties on to individual investors, lowering
overall rates.
Harvest was advised by Wells Fargo Securities on the deal, which includes cash plus incentive payouts. The Harvest team will keep its Wayne, Pennsylvania, headquarters, with Conklin reporting through Blackstone’s credit unit, said Blackstone partner Dwight Scott.
In buying Harvest, Blackstone is betting that demand will keep rising for transporting, refining and shipping oil and gas. The infrastructure assets, which operate under long-term contracts that generate cash flow, are partly protected from fluctuating commodity prices, Scott said.
The US midstream sector is experiencing a “hangover” after almost a decade of access to cheap capital that partnerships used to fund a project binge that’s helped connect America’s shale gas and oil to customers, Scott said. There’s still plenty of activity taking place among privately
held midstream players, he noted.
One such transaction involving Kingfisher Midstream LLC was announced.
“The private midstream transactions are very robust today, but you have the public companies under pressure from a valuation standpoint,” Scott said. “That kind of opportunity is the kind of thing that
we like to see, that’s one of the things that attracts us to this.’’
Led by Chief Executive Officer Steve Schwarzman, Blackstone has primarily built investment capabilities in-house, with some notable exceptions. Its credit unit was created with the transformational purchase of GSO Capital Partners in 2008, and in 2013 Blackstone scooped up a Credit Suisse Group AG unit that bought and sold stakes in private equity funds. Blackstone managed $371 billion across its various businesses as of June 30.
Blackstone, which already invests in energy through its credit platform and private equity funds, saw an acquisition as the best way to add a public equity offering via listed MLPs, said Scott, who was
promoted to president of GSO in June.