First Reserve, Triangle Petroleum Form Pipeline Joint Venture

By Jerry A. DiColo

Private-equity firm First Reserve Corp. has formed a new venture to build pipelines throughout the booming oil fields of North Dakota, an investment aimed at resolving transportation bottlenecks plaguing energy producers in the region.

The $23 billion energy-focused firm has committed $150 million to a joint venture with Denver-based oil-and-gas producer Triangle Petroleum Corp. (TPLM) to launch a pipeline and transportation company focused on the Bakken Shale, an unconventional oil and gas play that has turned North Dakota into the second-largest energy producing state in the country, after Texas.

The new company, Caliber Midstream Partners LP, will begin by constructing pipeline gathering systems with a capacity of 10,000 barrels of oil and 15 million cubic feet of natural gas per day by the middle of next year, connecting more than 100 far-flung oil and natural-gas well sites to rail terminals.

The company plans to add additional pipelines that will link wells to major interstate pipelines that cut through the region.

"There are hundreds of thousands of miles of pipe that need to be built. It's a massive opportunity," said Jon Samuels, Chief Executive of Triangle, which contributed $30 million as well as operational personnel, and will have a 50% voting stake in the new company. "You could have stable market share and still have 100% growth per year."

Small producers as well as oil majors such as Exxon Mobil Corp. (XOM) have rushed to North Dakota to take advantage of the energy boom, creating thousands of new jobs in construction, trucking and other services in a sparsely-populated corner of the Midwest. But vast distances and a lack of infrastructure to move oil and gas has slowed progress in many promising areas.

"The existing infrastructure is just trucks," said Mark Florian, managing director of First Reserve and head of the firm's $1.2 billion Energy Infrastructure Fund. "I was up in the Bakken with the team a month and a half ago. There are wheat fields as far as the eye can see, dotted with oil wells and nothing in between. There is nothing connecting any of it."

Caliber isn't expecting any issues due to environmental permitting.

Triangle, a small exploration and production company, is expecting to pump as much as 3,600 barrels a day by January. Currently, the company's wells can profitably pump oil with prices above $70 a barrel. When the new pipelines are in place, Mr. Samuels expects the company will break even as long as prices stay at $45 a barrel.

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