AWARD SPOTLIGHT: PFM Capital Inc. winner of the 2020 PE Private Capital Regional Impact Award for Steel Reef Infrastructure Corp.
When Steel Reef Infrastructure Corp. was launched eight years ago, it was with a focus on developing small midstream projects such as pipelines and gas plants in the Western Canadian Sedimentary Basin that had the potential to generate superior returns.
The thesis, according to Steel Reef founder and executive chairman Lane McKay, was that smaller projects would attract more small contract bidders than larger, more costly ones. The smaller size also meant fewer approval steps for take-or-pay contracts with oil companies and more control over costs.
The Calgary-based company initially raised $67M in startup capital 2013 to help acquire its initial projects and has completed a total of six financings to date. One of its largest shareholders, which has participated in four of the six raises, is Regina-based PFM Capital. PFM CEO and founding partner Rob Duguid sits on the Steel Reef board.
“We wouldn’t have launched our company without PFM,” McKay says.
Steel Reef’s most recent financing was $175M to help pay for a $500M acquisition of associated natural gas assets in Saskatchewan, which closed earlier this year, substantially increasing its asset base and processing capacity.
Steel Reef has grown substantially by recovering associated gas, a byproduct from the production of crude oil that would have been either flared or vented. Today the company has more than a dozen facilities in Saskatchewan, Alberta and North Dakota and is valued at about $1B. It has over 150 employees, almost 90 of which are in Saskatchewan.
Steel Reef is a leading gas processing midstream company in Saskatchewan and has deployed more than $800M in capital investments in the province.
“Saskatchewan is moving closer to being self-sufficient on its own natural gas production. That’s a huge thing,” says McKay, who was recognized as the 2019 Saskatchewan Oilman of the Year.
Steel Reef and PFM Capital, Saskatchewan’s largest private equity investment firm, received CVCA’s PE Regional Impact Award for Western Canada.
McKay says PFM was instrumental in supporting the company and helping to guide it over the years.
PFM Capital has raised more than $860M in capital across eight retail or institutional and private wealth funds. Funds managed by PFM target investments in private mid-market Western Canadian based companies that offer the potential for substantial capital appreciation or income generation, concentrated in the energy, value-added agriculture, manufacturing and industrial sectors.
Jason Moser, a senior director of investments and partner at PFM Capital, says his firm was originally attracted to Steel Reef for its “debt-like attributes with equity-like returns,” adding that the “risk-return trade-off is quite unique.”
PFM’s latest investment in Steel Reef was in 2019, when it participated in the company’s $90.5M financing, proceeds that went towards its expansion into North Dakota.
“We like to back our winners,” says Moser. “Steel Reef has done a great job of executing its business plan. They did what they said they would do and arguably exceeded expectations.”
Moser also says Steel Reef has been growing steadily at a time when the oil and gas industry has faced a number of challenges.
“They do a good job of knowing the right time to raise equity, spending it appropriately and earning a good return on that capital,” Moser says. “We expect them to continue to build out what they’ve started while sticking to their core competencies.”
Moser also says that the addition of alternative asset management firm InstarAGF as another strategic investor has also helped Steel Reef expand.
“A good outcome from us is if a company evolves and continues to grow and brings in a capital partner that has greater access to capital than we do. That’s the case with Instar,” he says. “That has allowed Steel Reef to continue to grow and execute at a high level.”
PFM also points to Steel Reef’s activities in the community, including its support of local sports teams, children’s health initiatives and providing financial backing to local fire stations.
The management has also built a company that cares for, and looks after, its people and their success. Most recently, Steel Reef has supported employees and their families with lunches and dinners to help “bring a smile to them during the stressful COVID-19 pandemic,” says Andrée Morier, Steel Reef’s manager of communications.
Steel Reef’s donations committee is also currently conducting a campaign to help those impacted by COVID-19 in the communities where the company operates.
“With operations in small communities, positive interactions with our neighbours are paramount,” Morier says. “The employees who run our facilities are proud community members and go above and beyond to be good neighbours and enhance their communities.”