CPP Investments eyes further ‘grey-to-green’ deals after Aera Energy buy

The Canada Pension Plan Investment Board (CPP Investments) is looking for similar transactions to its acquisition of Aera Energy following the close of the deal for California’s second-largest oil and gas producer at the end of last month.

CPP Investments teamed up with German energy asset manager IKAV to take a 49 percent stake in the company, with IKAV holding the remainder. IKAV had originally agreed to buy Aera from Shell and ExxonMobil in September and subsequently brought on CPP Investments to the deal.

The terms of the deal were not disclosed, although Shell said it would receive $2 billion in cash. The group owned a 51.8 percent stake before the takeover.

“This is a very tangible example of what we call grey-to-green and in such way is a really good fit with our strategy and is something we want to replicate,” Bruce Hogg, head of sustainable energies at CPP Investments, told affiliate title Infrastructure Investor.

Aera’s assets account for nearly 25 percent of California’s oil production. It produced about 90,000 barrels of oil and 23 million cubic feet of natural gas each day in 2021. However, CPP Investments and IKAV are looking to help the company balance its energy transition efforts and ultimately achieve net-neutral emissions by 2033, according to CPP Investments.

“This kind of investment is something we’d like to replicate elsewhere,” revealed Hogg. “Our upstream portfolio is increasingly focused on being lower carbon production. [Through Carbon America], we’ve invested in one of the largest carbon capture projects in North America. This type of business we’d love to replicate. It plays to building blocks we’re doing elsewhere; increasingly responsible, energy efficient and green production of steam and what’s required for oil production and carbon capture.”

Hogg outlined the process envisaged, which will play into California’s clean energy goals, which aims for 100 percent zero-carbon electricity and net-zero greenhouse gas emissions by 2045.

“In the near term, it provides accessible oil to meet energy supply and security needs for California but the plan over time is to decarbonise the supply of oil and ultimately turn this into a green business and asset,” explained Hogg. “The steam for oil production is currently provided by natural gas generation but there’s evolution to capture the carbon associated with the natural gas, sequestrating that on site.

“The next step would be to replace gas-powered steam with steam generated by concentrated solar. That would go from carbon sequestration of the natural gas to solar powered steam, which frees up the carbon sequestration on site, which we can move from sequestrating our own carbon to sequestrating third-party carbon. As the oil supply ramps down, you then are able to transfer that power, the PV and CSP solar into third party power.”

In a statement announcing the deal, Hogg said the move would deliver Californians cleaner energy supplies while delivering “long-term risk-adjusted returns” for CPP Investments. Asked what kind of returns CPP Investments expects to deliver from the move, Hogg responded: “We think it’s doing well by doing good. It’s attractive because these incremental products and services we’re providing are ultimately valuable to the state and elsewhere, so we will generate good returns by doing this. It’s accretive to the value by doing this work.”

The Toronto-based pension investor was recently successful in California’s floating offshore wind auction, partnering with Ocean Winds for rights to develop on West Coast waters.