Four years after its initial investment, JPMorgan Partners and its affiliate Haddington Ventures agreed to sell energy company Western Hub Properties to Aquila Inc.
Aquila, in partnership with ArcLight Energy Partners Fund I LP, will purchase the natural gas storage development company for more than $220 million, generating a rate of return of more than 40% for JPMorgan and Haddington.
In 1997, Larry Bickle, John Strom and Chris Jones, the founders of Haddington Ventures and natural gas company Tejas Power, sold Tejas to PacifiCorp. However, the buyer was restricted from developing gas storage in California due to an area of mutual interest exclusion. So, Bickle, Strom and Jones retained the Lodi Gas Storage facility of Tejas and combined it with another asset, Market Hub Properties, creating Western Hub Properties.
JPMorgan Partners and Haddington invested more than $40 million in the development of Western Hub throughout their ownership. “We purchased the site and started original work in late 1997 and have carried it through an extremely difficult permitting process in the state of California,” said Bickle, a founder and managing director at Haddington.
“We had funded it through various stages of permitting and initial development work and Aquila recognized a nice value in owning and manging the storage facility,” said Christopher Behrens, a partner at JP Morgan Partners. “We were able to get a nice gain on our investment without continuing to fund it on our own.”
Now that the company is nearly through its development stages and is expected to go online in October or November, Haddington Ventures and JPMorgan are ready to step aside and let Aquila take the controls. “We don’t want to be in the gas or the electric marketing businesses,” said Bickle. “We want to develop the assets that allow people to be in that business. It’s been part of the game plan all along.”
In the past 15 years, JPMorgan and Haddington have built close to a billion dollars worth of projects, said Bickle. Their specialty is preparing the company for success and then handing it over to another company to put the wheels in motion. “Identifying what assets ought to be built and where they should be built and, in particular, the geologic characteristics that allow you to build them that’s where we bring a great deal of expertise,” Bickle said. “We add a lot to the rate of return by adding our intellectual capital at that time in the process.”
Aquila and its partner, ArcLight Capital Partners, are currently awaiting the approval of the California Public Utilities Commission. The deal is expected to be completed by year-end. Western Hub Properties, which was advised by Dresdner Kleinwort Wasserstein, should be in good hands as Aquila quickly becomes one of the top traders in the energy industry. “In Aquila, we found somebody who valued the development work that had been done to date and was willing to pay an attractive price because of the type of utilization they’ll be able to get once it’s in operation,” said Behrens. “So it fit well with the strategic acquirer.”
“[The sale of Western Hub] is a good affirmation of a thesis we developed three to four years ago,” said Behrens. “Having Haddington as operating partners who have done this before in natural gas storage and our comfort level having worked with them before, and being in an interesting state for natural gas storage came together to produce a nice winning combination.”
JP Morgan Partners earlier this year divested its interest in Bear Paw Energy, with a sale to Northern Border worth $370 million a return of four times the original investment (Buyouts April 23, p. 22).