Apollo, Blackstone, KKR Vie for Shell Stake in LNG Canada Project

Apollo, Blackstone and KKR are competing to acquire a major stake in the LNG Canada export project, a deal that could exceed $10 billion as Shell seeks new investment.

(Reuters) — Apollo Global Management, Blackstone and KKR are battling it out to acquire a significant stake in the mammoth LNG Canada project from energy major Shell, three people familiar with the matter said.

The trio, among the world's largest asset management firms, are the remaining bidders in the auction process, run by Shell, which also garnered interest from other large money managers and infrastructure investors. Any deal is expected to be valued well north of $10 billion and could reach as high as $15 billion, according to some of the people. Everyone who spoke with Reuters asked not to be identified because the bidding is confidential.

The sale will allow Shell, which on April 27 announced a $16.4 billion deal to buy Canadian natural gas producer ARC Resources, an opportunity to sell a big portion of its 40% stake in LNG Canada and attract new capital to the export project ahead of the facility's possible expansion.

LNG Canada, which started production in June, is the first major liquefied natural gas facility in North America with direct access to the Pacific, allowing it to ship straight to buyers in Asia, the largest market for the super-cooled fuel.

Shell plans to sell exposure in the first and second phases of the project to one bidder, rather than splitting the two parts, which was a possibility when Reuters first reported the sale process in January, some of the sources added.

Any one of Apollo, Blackstone and KKR could ultimately win out, or Shell could retain some or all of the stake, the people said.

Shell declined to comment. Shell CEO Wael Sawan said this week that the British major was "very comfortable" with its 40% stake in LNG Canada, and while it was "not necessarily looking at reducing our equity interest," the company was keen to generate cash from lower-return parts of its business and where it is not the natural owner.

Apollo, Blackstone and KKR declined comment.

Insurance Money

Shell is the largest backer of LNG Canada, whose other owners include Japan's Mitsubishi Corp., Malaysia's Petronas, and MidOcean, a joint venture of investment firm EIG and Saudi Aramco.

The allure for potential buyers of LNG Canada has only increased in recent weeks as North American energy assets have benefited from moving oil and gas unencumbered as Middle Eastern energy supply has been throttled due to the U.S.-Iran war.

All three asset managers are using capital from their insurance businesses - Apollo's Athene, Blackstone Credit & Insurance, and KKR's Global Atlantic - to boost their respective bids, some of the people said.

Money managers have in recent years increased their use of insurance assets as a low-cost funding source for other strategic areas of their business. Infrastructure assets are well-suited to such investments, as they are considered lower risk and long duration.

Blackstone, for example, used its insurance unit last year to back a joint venture with EQT, which owns a number of the natural gas producer's stakes in major U.S. pipeline assets.

($1 = 1.3681 Canadian dollars)