11/16/2011 09:48 EST | Updated 01/16/2012 05:12 EST

Caisse de depot buys 16.5 per cent stake in US pipeline for US$850 million

MONTREAL - Canada's largest pension fund manager, Caisse de depot et placement du Quebec, said Wednesday that it's buying a 16.55-per cent interest in a U.S. oil pipeline for US$850 million.

The Caisse said it will acquire Colonial Pipeline Co. and Colonial Ventures LLC from ConocoPhillips (NYSE:COP).

The Colonial Pipeline is considered the largest refined petroleum products pipeline in the United States. It extends more than 8,800 kilometres between the Gulf of Mexico and the Northeastern U.S. and transports the equivalent of 2.3 million barrels a day.

"The Caisse is always interested in quality assets that yield stable, long-term returns," said Normand Provost, executive vice-president of private equity and chief operations officer.

"This particular investment targets an infrastructure project in a regulated industry that we know well through our investments in Gaz Metro, Interconnector, Enbridge and Fluxys," he said in a news release.

The Caisse said it expects to close the transaction in the first quarter of 2012.

The transaction is part of a larger sale of oil and gas assets by ConocoPhillips on Wednesday designed to focus the company on its most profitable businesses.

Analyst Philip Adams of U.S.-based Gimme Credit said ConocoPhillips is in the process of "skinnying down" its assets.

Adams said he couldn't speculate why the Caisse made the pipeline purchase but said it should provide advantages.

"If somebody was looking for an asset that would provide steady income, a little bit of growth, a good market position, a regulated rate of return, or tariff rate of return and would lend itself to distribution a high percentage of its cash flow, that might be an attractive investment for that type of a fund," Adams said from Chicago.

ConocoPhillips also sold its 50 per cent stake in the Seaway crude pipeline between Oklahoma and Texas to Calgary-based Enbridge Inc. (TSX:ENB) for $1.15 billion. ConocoPhillips announced earlier this year that it would split itself into two separate companies — one that would explore for and produce petroleum and another that would refine and market it.

The Caisse de depot et placement du Quebec manages funds for public and private pension and insurance plans, with some $151.7 billion in net assets under management as of Dec. 31, 2010.