Given the growing downturn in the energy market, few investors have a desire to invest in the sector these days. However, great challenges often bring even greater opportunities, which is what Brookfield Infrastructure Partners (NYSE:BIP) sees in energy infrastructure. That's why the company is eyeing three different types of opportunities to invest in energy infrastructure assets as it looks to expand its own energy segment's portfolio.
Opportunity No. 1: Build
Late last year, Brookfield Infrastructure Partners joined forces with energy infrastructure giant Kinder Morgan (NYSE:KMI) to jointly acquire the 53% of the Natural Gas Pipeline Company of America (NGPL) that they didn't already own. One of the primary reasons the partners bought out the rest of NGPL's investors was to focus on capturing a number of organic growth opportunities they see on the near horizon. In fact, Brookfield Infrastructure Partners sees these opportunities being its main fuel for organic growth over the next few years.
The company plans to invest $140 million over the next two to three years to expand NGPL, which includes expanding in the Chicago market as well as the first phase of the Gulf Coast Reversal project. These expansion projects are expected to drive 20% EBITDA growth at NGPL in 2016, with a further step-up in EBITDA in 2017 and 2019 as projects go into service. Beyond that, the partners see a lot of potential for expansion along the Gulf Coast due to NGPL's close proximity to LNG export facilities, which provides Brookfield with additional opportunities to put capital to work.
Opportunity No. 2: Partner
The recent collapse in energy prices is causing significant financial stress among oil and gas companies, which has recently trickled down to energy midstream companies. Because of that, these companies no longer have unfettered access to the capital market, which is making it really tough for them to obtain funding to pay for new investments. Kinder Morgan is a prime example of this, with the company significantly reducing its dividend to free up cash to invest in its growth project backlog after it was no longer able to issue equity to fund these projects.
That lack of access to capital is causing Kinder Morgan and other midstream companies to look at new ways to fund growth projects, including seeking joint venture partners to help finance some of these projects. Given that Brookfield does have access to capital, and has a history of partnering with others on acquisitions and projects, it could become a partner of choice for midstream companies that need a financial partner.
Opportunity No. 3: Buy
Direct acquisitions are another opportunity for Brookfield Infrastructure Partners. It pointed this opportunity out in its earnings release, saying that because of the downturn's impact on asset values, for the "first time in many years, we will be able to make investments on a value basis" in North American energy infrastructure.
A growing number of energy companies are looking to sell infrastructure assets in order to either repair their balance sheets or raise the capital they need to fund new growth. For example, Williams Partners (NYSE:WPZ) had to cut its capex budget by $1 billion, or 32%, because its access to capital has been significantly constrained by the downturn. In fact, Williams Partners no longer plans to access the capital market to fund its growth spending in 2016 and instead intends to sell more than $1 billion in assets through the first half of this year to provide it with the balance of the cash it needs to fund its capital program. Williams Partners is one of the growing list of energy companies that are planning to sell infrastructure assets in order to bridge their funding needs through what they hope is the low point of the cycle. That said, with so many sellers and fewer buyers, Brookfield really has its pick of assets to buy at valuations not seen in quite some time.
Most investors loathe downturns because it means the value of their investments are going down. That's not the case with Brookfield. Instead, it looks forward to downturns because its opportunity set increases tremendously. That's certainly the case with the recent energy downturn, with Brookfield seeing a number of opportunities to invest in the sector, something it hasn't seen in quite some time.
Matt DiLallo owns shares of Brookfield Infrastructure Partners and Kinder Morgan and has the following options: short January 2018 $30 puts on Kinder Morgan and long January 2018 $30 calls on Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool recommends Brookfield Infrastructure Partners. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.