CSV Midstream Receives Backing From Apollo Global Management

BY ELSIE ROSS (/AUTHOR/ELSIE-ROSS/) – MAY 29, 2014 – VIEW ISSUE (/HEADLINES/2014-05-29)

Backed by a $500 million investment from a global private equity firm, the chief executive of a Calgary-based midstream company says he believes his company has something unique to offer.

“We’re trying to provide producers with that cost and schedule certainty in a true shared-risk proposition,” Dan Clarke, the founder of CSV Midstream Solutions Corporation, said in an interview. “We think that the incumbents have done well; they’ve set up very good businesses that are the darlings of the energy sector right now but they are struggling to meet the demands of the future development that is going to be required to meet speculative LNG demand.”

CSV announced Wednesday that it has entered into a strategic partnership with funds affiliated with global private equity leader Apollo Global Management, LLC.

Funds managed by Apollo have provided an equity commitment to fund the company’s business plan to build and operate new midstream facilities in what Clarke described as the “sweet spot” in the Montney and emerging Duvernay plays in Alberta and northeast British Columbia. “Our partners in the U.S. are very conscious of this concept of shared risk; that’s very much how the U.S. model is done so they are fully backing us in this shared risk concept,” he said.

“This strategic partnership with CSV Midstream is a great example of Apollo’s approach to partnering with proven management teams and providing the needed capital and other resources to help launch profitable new businesses in attractive markets,” Rakesh Wilson, a partner of Apollo, said in a new release. “Over the years, the CSV Midstream team has developed valuable relationships and has built a solid track record of project development in the Canadian midstream sector.”

Clarke said his company believes that its operations-focused management team will be able to keep a direct line of sight to projects, applying its background in execution and operational and engineering expertise. Because of its ability to execute projects, CSV will be able to share the risk with producers, according to Clarke.

“Hopefully we can get to a point where producers can effectively predict their capital outlays instead of always repeat examples of failed expenditures and blown budgets,” he said. “We don’t think it has as much to do with the resource issue as it is about an execution and control issue and we just think we bring that to the table quite clearly and there seems to be a lot of interest.”

CSV believes the big opportunities lie in gas plant development where it intends to minimize the facility footprint within the field and minimize the construction time by the use of innovative practices and modularized construction techniques. Although producers would still have to sign up for capacity as they do with other midstreamers, the difference would lie in the fee structure, he said.

Whereas midstream companies typically base their fees on an estimated initial plant cost, it’s not fixed and if the cost rises it’s usually passed on to producers, according to Clarke. “Our biggest challenge is going to be to create a microscope big enough that our customers are convinced thereisn’t any fine print.”

Clarke said his company intends to bring the concept of shared value to the industry first by demonstrating its willingness to share risk. It then would like to bring operators together in early developments such as the Duvernay where large prolific players hold large land positions but “nobody is willing to blink and take all the risk themselves.”

CSV hopes to be “the glue that draws all those parties together and build great facilities that create partnerships between all the various groups,” he said. “The mystery isn’t really how to get it [the resource] out any more but how to get it to market and that’s the part that we are bringing to the table and we want to partner up with them and utilize their strong resource base and develop and grow with them.”

Although the Montney is further ahead in terms of infrastructure development, its liquids capacity is constrained, said Clarke. “The billions of dollars that is going to be required to develop that is going to require partnerships.” And in order to meet the demands of even one or two LNG projects, “there’s going to have to be partnerships and people are going to have to work together.”

When it comes to new plants, Clarke’s company also is committed to early consultation with local stakeholders and believes it should share the burden with them and be an active participant in their communities. “We’d like to believe there is going to be lots of feet on the ground long before there’s going to be operations,” he said.

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