Argus reported that South Korea's national pension fund has bought Chevron's stake in the US Colonial Pipeline, part of Seoul's growing appetite for foreign energy assets.
The National Pension Service of Korea has teamed up with US investment firm Kohlberg Kravis Roberts to buy the 23.4% stake for an undisclosed price. The deal was announced recently, although the partners said the sale closed on October 8th 2010. The 8,800 kilometers, 2.4 million barrels a day Colonial oil products network links US Gulf coast refineries to Atlantic coast terminals.
NPS had been linked to the deal in August, when Chevron confirmed it was negotiating to offload its stake. Chevron was one of the five owners of Colonial, together with ConocoPhillips, Shell, US downstream firm Koch and Australia-based infrastructure company IFM.
Chevron has been shedding downstream assets and employees as it refocuses on the upstream sector, particularly natural gas ventures in Asia-Pacific. It earlier this year announced plans to exit more than 50 retail markets, sell 60 terminals and cut capital employed at its retail stations by 41% from 2009 levels during the next few years. It has already divested almost USD 1 billion per annum in downstream assets outside of the Pacific Rim in the past decade. The latest wave of Chevron's restructuring will cut 2,000 jobs downstream, on top of last year's 1,900, with further reductions possible in 2011.
The pursuit of the Colonial stake by NPS follows a wave of foreign acquisitions by South Korean state linked companies, primarily part of Seoul's drive to boost spending to raise its equity upstream output.
South Korea's government as far back as 2007 had expressed a desire to tap the KRW 300 trillion fund that NPS administers for foreign oil and gas acquisitions. Seoul then said it was considering using KRW 20 trillion from the pension fund for such acquisitions. NPS has already signed investment contracts with the country's three main state-owned resources firms, KNOC, Kogas and Korea Resources, which buy most foreign energy assets.
KNOC is at the forefront of the upstream drive, with last month's USD 2.9 billion takeover of UK independent Dana Petroleum heralding a more aggressive approach. South Korean energy firms in the past have preferred to maneuver quietly for upstream assets. But more aggressive acquisition activity is required given the current competitive state of the global upstream sector, especially with cash-rich Chinese oil companies equally hungry for assets.
The fresh investment from NPS and KKR could help Colonial's expansion plans that were put on hold last year because of falling product demand in the wake of the global economic slowdown. Its Project ExCEL, announced in 2006, was intended to ease capacity constraints on its network. The 36 inch diameter pipeline would have run alongside Colonial's existing lines from Louisiana to Georgia.
(Sourced from www.argusmedia.com)
