Grafton now eyeing renewables
‘I’m worried about the future,’ CEO admits
• Grafton Asset Management Inc., a firm that has brought foreign investment into Canada’s oil and gas industry, is looking to add alternative energy to its portfolio for the first time as it positions itself for the decline of fossil fuels.
“I’m worried about the future of the industry in general,” Geeta Sankappanavar, president and chief operating officer of the Calgary- based investment firm, said.
“It’s going to be a great business for a period of time, but I do look at it as a sunsetting business — one where we’ll see competition and disruption from outside our industry.”
Oil and gas companies have had to cut investment and fire workers to weather the worst price crash in a generation. As crude rebounds after OPEC and other major exporters pledged to cut output, some producers such as Cenovus Energy Inc. are resuming expansion plans. But prices are still half their peak level in mid-2014.
Sankappanavar expects the oil and gas industry’s recovery to be muted compared with previous cycles and is looking at financing more environmentally friendly and renewable power projects across Canada, including natural gas plants and biomass facilities. The company plans to attract capital from global investors to diversify its asset base. A majority of Grafton’s capital comes from the Middle East, Europe and the U.S.
Grafton has about $ 1 billion in assets under management, of which $900 million is focused on direct investments in the Canadian oil and gas sector and the remaining $ 100 million is invested through its Grafton Energy Opportunities equity fund. The fund returned 65 per cent last year through November, according to preliminary, unaudited figures from the company. That’s more than double the 30 per cent gain for the S& P/ TSX energy sector index over the same span.
The firm’s equity portfolio includes oilfield services provider Canyon Services Group Inc. and producers Kelt Exploration Ltd. and Seven Generations Energy Ltd. Seven Generations more than doubled last year, while Canyon and Kelt rose 73 per cent and 60 per cent, respectively.
Grafton has stayed away from investing in assets that are already producing. Instead, the firm’s strategy is to look for those that look promising for what they hold below ground, even if projects face challenges and would take three to five years to start output.
The company has a partnership with Tourmaline Oil Corp. and owns 25 per cent of the producer’s Peace River High project. It also has a joint venture with Bellatrix Exploration Ltd. and holds assets in the Montney, a shale formation straddling Alberta and British Columbia.