Brookfield flexes its muscles in energy industry with Ember, EFH deals

This year Toronto-based Brookfield also continued to back the acquisition-led growth of Ember Resources, a coal-bed methane (CBM) producer based in Calgary. In October, Ember agreed to buy most of Encana Corp’s Clearwater assets in Alberta.

That deal, previously disclosed, will give Ember Resources about 1.2 million net acres of land and over 6,800 producing wells of natural gas. It is expected to close in early 2015.

A source with knowledge of the matter said Clearwater was Ember Resources’s second acquisition from Encana in 2014. Five months earlier in an undisclosed deal it also bought the Canadian energy producer’s CBM properties in Alberta’s Nevis region, which are contiguous with its own.

The two transactions build on Ember Resources’s purchase in 2013 of oil and gas assets held by Apache Corp. Concurrent with that deal, Brookfield bought out Ember Resources’s other Canadian PE investors, ARC Financial Corp and KERN Partners, and became the sole shareholder.

Since it was taken private by Brookfield, ARC and KERN in 2011, Ember Resources has announced or closed four acquisitions worth $908 million. The 2014 Encana deals, which have a combined value of $656 million, reflect the largest activity so far in Brookfield’s efforts to support Emberj Resources as a leading CBM platform.

In August, Brookfield disclosed that it has been accumulating debt in Energy Future Holdings (EFH), an electric utility business based in Dallas that filed for bankruptcy in April.

Formerly known as TXU Corp, EFH was bought in 2007 by an investor group led by Kohlberg Kravis Roberts & Co and TPG Capital. The LBO was valued at close to $32 billion. Bloomberg recently reported that investments of the primary PE owners may be almost erased by EFH’s reorganization plan.

In the transcript of a conference call with Brookfield investors, Senior Managing Partner and CEO Bruce Flatt expressed the firm’s belief that EFH “is a good company that had a very bad capital structure.” He said this kind of situation “is similar to many of the restructurings that we have been involved in the past.”

As a result, Brookfield’s PE group acquired a “substantial amount of debt” in EFH’s power generation and distribution subsidiary, and is now one of its largest creditors.

Flatt said Brookfield expects to be “a cornerstone investor” in the business once it emerges from bankruptcy, and will focus on working with management to ensure it has sound financial footing.

Will Brookfield parlay its 2014 energy deals into a next round of fundraising?

It’s possible. In October, Bloomberg reported that the PE group is targeting $3 billion for its forthcoming Brookfield Capital Partners Fund IV LP. That’s triple the $1 billion raised by Fund III.

Brookfield declined to comment on its 2014 dealmaking and fundraising plans.