KKR Said to Weigh Calgary Closing as Dealmaker Goes to Menlo

  • Brandon Freiman will focus on infrastructure from Menlo Park
  • Buyout firm invests in production, midstream deals in Canada

KKR & Co. is considering closing its Calgary office about two years after setting up shop in the heart of Canada’s oil patch, as its top dealmaker leaves town to focus on infrastructure investments, two people familiar with the move said.

The private equity firm is moving Brandon Freiman, who leads its Canadian energy and infrastructure team, to Menlo Park, California, to work on KKR’s new $3.1 billion infrastructure fund, said the people, who asked not to be identified discussing confidential information. An associate based in Calgary, Paul Workman, is making the move too, the people said. Raj Agrawal, the firm’s global co-head of infrastructure, is based in Menlo Park.

Calgary is one of New York-based KKR’s more than 20 offices globally, and its only one in Canada. Freiman will continue to oversee KKR’s Canadian investments, as the firm is currently looking at several deals in Calgary, the people said. The office may be closed at the end of its current lease later this year, though a final decision hasn’t been made, they said.

“We’ve invested over the last few years in building our presence in Calgary and are very pleased with how our portfolio has performed through a choppy market,” Freiman said in an e-mail, declining to comment further. “Calgary has been a core and successful market of ours and we will continue to actively cover the market going forward.”

Workman didn’t immediately respond to an e-mailed request for comment.

Crude Downturn

Canada’s energy industry is struggling to compete with the U.S. for investor capital amid a crude market downturn that’s lasted longer than 20 months. Producers are scrapping projects in Canada’s oil sands and focusing on less costly shale drilling in the U.S., which is poised to remain the largest source of supply growth outside the Organization of the Petroleum Exporting Countries, according to a report this week from the International Energy Agency.

KKR, run by Henry Kravis and George Roberts, has been focused on companies that transport and process oil and gas, known as midstream businesses, as well as energy production in Canada. Midstream companies can be sheltered from the price rout by contracts in some cases, though aren’t immune. Producers have been directly hit by the roughly 70 percent slide in U.S. crude prices since mid-2014.

KKR made a C$75 million ($54 million) investment in 2012 in Westbrick Energy Ltd., a producer focused in Alberta that has grown output to the equivalent of 14,000 barrels of oil a day, according to a September 2015 presentation on the company’s website. KKR controlled 78 percent of the company at the time, according to the presentation.

In December 2013, the firm announced a C$250 million investment in Torq Energy Logistics Ltd., which ships crude from oil fields to rail terminals for transport by train. Rail exports of oil from Canada have fallen in the price slump, declining 30 percent from their peak in the third quarter of 2014 to about 116,000 barrels a day a year later, according to data from the National Energy Board.

KKR teamed up with Veresen Inc. in December 2014 on a joint venture planning to invest C$5 billion to expand natural gas pipelines and processing facilities in Canada’s Montney shale formation and serve producers including Encana Corp. and Mitsubishi Corp. The investments are backed by a fee-for-service arrangement with Encana and Mitsubishi, which are among producers shrinking drilling budgets as they try to protect their balance sheets in the price slump.

Encana has had "tremendous" well results in the Montney, where it more than doubled condensate production by bringing on liquids-rich wells in British Columbia in the fourth quarter, executives said Wednesday on a conference call discussing the quarter’s financial results. The Calgary-based company will run two rigs in the Montney this year and anticipates liquids output growth of more than 50 percent annually in the region through 2018, the executives said.