Targets: Plasco Energy; Cobalt International Energy
Investments: Plasco: C$35 million; Cobalt: $350 million
Sponsor: First Reserve Corp.
In the span of two days, energy-focused LBO shop
In the first, First Reserve committed C$35 million ($34.5 million) to Plasco Energy, a Canadian company that converts garbage into energy. The company operates a test facility outside of Ottawa, and First Reserve has pledged an additional C$135 million in 2008 to build new conversion stations in Canada, the United States and Europe, said Glenn Payne, the First Reserve director who led the deal and who oversees investments in alternative energy.
In the second deal, First Reserve pumped $350 million into Cobalt International Energy, a Houston-based off-shore and deep-water drilling company that extracts fossil fuels from beneath the sea floors of the Gulf of Mexico and the Atlantic Ocean off the coast of West Africa. In October, Cobalt spent $211 million in a U.S. government-run auction to obtain the rights to explore and extract oil from 53 blocks of acreage beneath the Gulf of Mexico.
First Reserve has dedicated 10 percent of its newest $7.8 billion fund to alternative energy, and the Plasco deal follows First Reserve’s 2006 investment in Ingenco, another waste-to-energy company. Plasco transforms ordinary household garbage—also known as municipal solid waste—into usable energy and other green products. Emissions from the patented process are “negligible,” Payne said.
Plasco differs from just about every other waste-to-energy company in that it doesn’t just vacuum up methane gas produced by landfilled garbage and pump the gas into power-producing turbines. Rather, Plasco prevents the trash from entering the landfill in the first place, Payne said.
In that sense, Plasco is a true green play, he added, since the company’s technology holds out the possibility of eliminating trucks that haul large amounts of trash from landfill-clogged big cities to rural areas with open spaces and emptier landfills.
Plasco’s facilities will most likely play best in Europe, where land scarcity has made new landfills virtually impossible to permit, as well as in big cities in the United States and Canada. “It’s not the solution for everyone,” Payne said. Plasco will own all of its plants.
With Cobalt, First Reserve’s $350 million investment places it alongside a high-profile roster of backers, including
Cobalt was a surprise participant in the October acreage auction, the largest since 1983, and ended up winning the most number of highly contested bids, Murchison said. Combined with Cobalt’s previous holdings, the company owns the leases on 107 blocks, enough to support Cobalt’s five-year production plan.
Cobalt spent tens of millions of dollars before the auction conducting geological tests and taking 3-D seismic images of the acreage under consideration, Murchison said. Now that Cobalt owns the rights, it will search for drilling prospects in the allotted acreage. Eventually it will rent enormous deep-water rigs capable of drilling through 8,000 feet of water and as much as 30,000 feet of earth before reaching the oil reserves. “This is like the technology [used in] the space program,” Murchison said. “It’s hugely expensive on the front end, but the operating costs of pumping are actually quite low.”
He added that worldwide deep-water reserves are just beginning to be explored, positioning Cobalt for years of growth. Investors such as First Reserve are counting on Cobalt to build up an asset base and lease holdings that would make the company an attractive candidate for a public offering or for an acquisition by a big oil company.—J.H.