Speaking at a recent luncheon in Sydney, AMP Capital head of global listed infrastructure Tim Humphreys said it is crucial to correctly define ‘infrastructure’ when analysing the US shale gas environment.
Investors like to think of oil exploration, production and construction companies as constituting ‘infrastructure’, Mr Humphreys said.
“For us [at AMP Capital] it’s really about what an asset generates in terms of cash flow,” he said.
AMP Capital invests exclusively in shale gas pipelines that have so-called ‘take or pay’ contracts in place with shipping companies, Mr Humphreys said.
These companies have legally binding agreements in place with oil producers that will be paid regardless of the price of oil.
“They have very little if any sensitivity to the oil price – whereas the exploration companies obviously do have sensitivity to price of commodities and volumes,” he said.
But when the oil price fell by 50 per cent last year, some of the infrastructure (ie. gas pipeline) company’s share prices fell more than the oil exploration companies, Mr Humphreys said.
“This is totally unfair, and gives you a sense of how inefficient the listed infrastructure market is.
“So we took the opportunity to buy and/or increase our weighting in some of these companies and it has ridden the recovery ever since.
“As the oil price fell we took the opportunity to increase the weighting of shale gas exposed companies because we saw the intrinsic long-term valuation that we have for companies we invest in unchanged, effectively,” Mr Humphreys said.
